Update – Tuesday October 20, 2009 – Fontainebleau Las Vegas Examiner Named
South Florida Business Journal Reports:
Jeffrey Truitt, a California consultant, has been named examiner in the bankruptcy case of Fontainebleau Las Vegas.
U.S. Bankruptcy Judge A. Jay Cristol appointed Truitt as a non-biased third party to oversee sale of the resort building.
“I believe that in order to keep this case going we need the appointment of an examiner,” Cristol said during an Oct. 8 court hearing.
The $3 billion hotel and retail project is being developed by a company led by Jeffrey Soffer of Aventura. It filed for Chapter 11 bankruptcy in June amid a dispute with lenders who had cut off funding for construction.
Truitt is a principal with XRoads Solutions Group in Santa Ana, Calif., whose Web site said he has 20 years of experience in complex business solutions and expertise in the gaming and hospitality industry.
Lenders alleged Soffer was biased by his personal guarantees on the retail portion of the project. Cristol proposed that an examiner be named after lenders filed a motion to convert the case to a Chapter 7 liquidation, and despite offers from Soffer to recuse himself from decisions about the bankruptcy.
Update – Friday, October 8, 2009 – Soffer Drops Out of Vegas Decisions
Related – New Video – Inside the Fontainebleau
The Miami Herald reports:
Facing accusations of conflicts of interest, Fontainebleau Las Vegas developer Jeffrey Soffer removed himself from negotiations to sell the bankrupt project. The judge doubted Soffer’s influence would disappear so easily.
Jeffrey Soffer has recused himself from key decisions on selling the bankrupt Fontainebleau Las Vegas, trying to blunt lender concerns about the developer’s financial exposure on the $2 billion project, his lawyers said Thursday.
Bankruptcy Judge A. Jay Cristol was skeptical of Soffer’s move, saying “nobody is going to believe he’s not running the show.” Over Fontainebleau objections, Cristol said he would name an outsider to monitor negotiations for the unfinished condo-hotel and casino. The maneuvers come as Fontainebleau lawyers say they’re days away from concluding a deal to auction off the project, which would cost an estimated $1.5 billion to finish.
Penn National Gaming is negotiating to make an opening “stalking horse” bid on the Fontainebleau Vegas that would amount to pennies on the dollar for lenders who fronted $1.6 billion for the venture and contractors with roughly $600 million in liens on the property.
Soffer’s exposure in the Vegas bankruptcy has gotten more focus as the case enters its fourth month.
He personally guaranteed at least a portion of $200 million in debt on the retail component of the complex, which has not filed for bankruptcy, but did not guarantee the loans on the bankrupt hotel itself.
Penn’s offer covers both components, and lenders argue that Soffer has an incentive to negotiate a larger price tag for the retail section at the expense of the hotel section. The lenders have asked Cristol to take the project away from Soffer and have a court-administered sale.
Soffer’s company, Fontainebleau Resorts, runs the Vegas Fontainebleau project and the original Fontainebleau in Miami Beach, which Soffer bought in 2005.
The Miami Beach project has not filed for bankruptcy.
One potential buyer is out – Apollo Management, which owns a 50 percent stake in Harrah’s Entertainment, filed a notice of withdrawal with the court Oct. 5.
Also, on Monday Judge Cristol approved the Fontainebleau to cancel their lease for 26 acres of land at the former site of Wet ‘n Wild, costing $350,000 a month. It was used as a construction staging and storage area.
Update – Thursday, October 8, 2009 – Judge to Appoint Examiner for Fontainebleau Sale Next Week – Allows Time for Sale to Occur
Bankruptcy Judge A. Jay Cristol, as he proposed last week, said today he will sign the order appointing the examiner to liquidate the project until next week. He encouraged Fontainebleau to continue talks with Penn National Gaming while lawyers have time to draft the order to define the duties of the examiner. More details of the potential sale emerge, see below.
The Las Vegas Sun Reports:
Cristol, during a hearing in Miami, said an examiner supervising the case and the sale would cost less than conversion of the case to a Chapter 7 liquidation that would be supervised by a trustee.
Term lenders claiming to represent nearly 60 percent of the $1 billion term loan today pushed for the appointment of the examiner, citing the need for transparency in the sales process.
Fontainebleau argued against the motion and said resort developer Jeff Soffer has recused himself from deliberations on the future of the project — a reaction to claims by lenders that Soffer is conflicted as both a debtor and creditor and as a personal guarantor of some Fontainebleau debt.
Cristol wasn’t impressed with that.
“Nobody’s going to believe he’s not running the show,” the judge said.
A Fontainebleau attorney argued against the immediate appointment of an examiner, saying it will take awhile for the examiner to get up to speed on the case and that this could delay the sales process.
He revealed some new details on the potential deal with Penn National: The gaming company would provide some $16 million in debtor in possession financing that would allow Fontainebleau to repay the term lenders their costs to finance the bankruptcy case and provide some funds for stabilizing the project including needed work on the roof and replacement of some windows.
The potential deal includes a financial incentive for the buyer to complete the project for less than $1.5 billion as well as a 3 percent break-up fee of the undisclosed purchase price, he said.
Penn may be aiming to bring in other investment partners, ultimately operating the resort under a management contract. This would allow Penn Gaming to use their player database with relatively minimal capital risk, with a favorable return on invested capital.
Update – October 6, 2009 Penn National Confirms Bid for Bankrupt Fontainebleau
Penn National, thought to be the stalking horse bidder, has now confirmed their interest in bankruptcy court, setting a bid at less than $300 million for the property and financing the project’s bankruptcy expenses.
The stalking horse position establishes a minimum bid and does not prevent other bidders from offering more.
The Fontainebleau is currently valued at $3 billion, and at 70% completed, estimates to complete range from $1 billion to $2 billion.
Bankruptcy Judge A. Jay Cristol noted that prospective deals come and go in Chapter 11 cases.
The scheduled hearing this week to place an outsider in charge of selling the Fontainebleau is proceeding, and on Monday he pressed Fontainbleau’s lawyers to produce an official agreement.
“Negotiations are wonderful,” the judge said. “But we have a saying in South Florida: Show me the money.”
Should Boyd Group Buy the Fontainebleau and Market it as New Stardust? See below.
In Miami on Friday, Judge A. Jay Cristol, citing the lack of progress in reorganizing Fontainebleau’s debt, a motion by key lenders that the project be liquidated, and lack of cooperation between parties, announced he wants to name an outsider to negotiate a sale for the stalled Fontainebleau Las Vegas to recoup more than $1 billion in construction costs for the unfinished casino hotel.
Fontainebleau’s lawyers say they have a buyer (Penn Gaming has voiced their interest) and want more time under Chapter 11 bankruptcy protection to close the deal. Lenders on the Las Vegas project want Cristol to intervene and liquidate the venture with a court-imposed sale. He does not propose moving the case from a Chapter 11 restructuring to Chapter 7 liquidation, as the lenders requested. But he proposed appointing an examiner to “negotiate and supervise a sale of debtors’ assets.” The judge is taking control of the situation, proposing the appointment of an examiner without a request by any party.
He said this makes more sense than to convert the case from Chapter 11 reorganization to Chapter 7 liquidation and appoint a trustee to supervise a sale, as proposed by the lenders. A hearing on the Chapter 7 conversion is set for Oct. 28.
Judge Cristol:
“The court believes it is more expeditious to proceed with any potential sale as soon as possible rather than to wait until Oct. 28, when a trustee, if appointed, would be required to expend a significant amount of time to obtain counsel, familiarize himself or herself with this case and effectuate a sale,” Cristol said in his order. “It also appears more economical to immediately appoint an examiner than to appoint a trustee whose fees and expenses would likely far exceed the costs and expenses of an examiner. The court therefore believes it is in the best interest of the estate and all parties to appoint an examiner at this time to examine, negotiate and supervise a sale of debtors’ assets.”
“The record in this case indicates that the parties to these proceedings are not cooperating with one another. A motion to convert has been filed by the Term Lender Steering Group seeking to convert this case to one under Chapter 7 of the (bankruptcy) code. The motion is premised upon the lack of meaningful progress made thus far in this case, despite the fact that more than $16 million of the Term Lender Steering Group’s cash collateral has been used during the administration of this case.
“The Term Lender Steering Group submits that completion of the Las Vegas project is not possible and a sale of the project to a third party and liquidation of the remaining assets is the only viable course to realize any meaningful value for the creditors.”
The New Stardust?
Some comments on the internet proposed a very interesting scenario – In retrospect the Boyd Group may regret the demolition of the profitable Stardust, their major Strip presence. Construction is not going to resume on Echelon for three years, and Boyd has enough capital to make a bid for some of Station’s properties. Why not buy Fontainebleau, make it the New Stardust, market it accordingly, demolish the Echelon shell, and make the property an amusement park. Many people miss Wet ‘n’ Wild.
Previous Fontainebleau post on The Pulse of Las Vegas - fully updated
Video – Inside the Fontainebleau
