|By Douglas Hanks, The Miami
HeraldMcClatchy-Tribune Regional News
November 18, 2009 --Penn National Gaming will offer up to $102 million to buy the Fontainebleau Las Vegas, an unfinished and bankrupt casino hotel that spent about $2 billion on construction and development over the past three years.
The stunning spread -- about 5 cents on the dollar -- was revealed in court papers Tuesday following weeks of negotiations between Fontainebleau and Penn National, a casino operator in Pennsylvania interested in a Vegas foothold. Developer Jeffrey Soffer is pursuing a sale of the Vegas Fontainebleau after putting the stalled project into Chapter 11 bankruptcy protection in June.
Other casino companies also have toured the Fontainebleau site and signed documents needed to prepare a bid for the project, said Howard Karawan, chief restructuring officer for Fontainebleau Resorts. The company, mostly owned by Jeffrey Soffer, is the parent of the Fontainebleau Vegas and the Fontainebleau Miami Beach.
"This is the start," Karawan said, referring to Penn's opening or "stalking horse" bid. "We really don't know where the auction is going to end."
Penn's offer has two parts: a $50 million opening bid, plus another $52 million loan to pay the project's bankruptcy expenses through a scheduled January auction. If other buyers want to outbid Penn, they would have to beat the $50 million bid plus pay the balance of the new loan.
"The next guy has got to come up with $102 million, plus a topping bid, in order to beat this," said Scott Baena, the Bilzin Sumberg bankruptcy lawyer representing Fontainebleau Las Vegas.
Penn's offer clears the way for a Jan. 21 auction. If no other suitors emerge for the 63-story tower, Fontainebleau would be required to accept Penn's opening bid. Penn can also increase its bid in the face of competition. Penn executives have said the Fontainebleau site on the Vegas Strip is virtually worthless, since it will require another $1 billion to finish the development. Soffer launched the Vegas project in 2007, but banks cut off funding last spring amid overruns and a dismal economy.
Weeks ago, Soffer recused himself from negotiations on the potential Vegas sale, lawyers said.
The Fontainebleau Miami Beach Resort is not a part of the Las Vegas bankruptcy proceedings, and Soffer maintains that Vegas problems will not spill into Miami Beach because both are separate corporate entities. But title insurers on the Vegas loans have sued to try to bring other Soffer assets, including the Fontainebleau Miami Beach, into the Vegas case.
Penn's $52 million in debtor financing will pay the Fontainebleau's bankruptcy lawyers and the cost of keeping the casino tower secure.
Some original Vegas lenders are fighting to liquidate the project rather than continue paying those bills with about $170 million in loan dollars still in Fontainebleau accounts.
Under the proposal that Fontainebleau Vegas filed Tuesday, the new Penn loan would reimburse lenders about $18 million in past bankruptcy expenses and release the remaining $170 million in loan proceeds.
Whoever buys the site would have rights to the Fontainebleau name for 12 months after the sale, though the remaining construction is expected to last at least 16 months. Any buyer would have to negotiate with Fontainebleau Resorts to license the Fontainebleau brand.
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