Penn National Gaming makes bid for bankrupt Fontainebleau

Penn National Gaming has emerged as the stalking horse bidder for the bankrupt Fontainebleau project, but is offering less than $300 million for the stalled nearly Strip resort, which is valued at almost $3 billion.

Penn spokesman Joe Jaffoni confirmed the company remained interested in the project, which was 70 percent completed when construction work was halted in April.

Cost overruns and the failing Las Vegas condominium market, which zapped potential sales, impacted financing for Fontainebleau. After lenders cut off $800 million in financing, Fontainebleau owners filed Chapter 11 bankruptcy on the project in U.S. Bankruptcy Court in Miami.

“All we can say right now is the company is still looking at the Fontainebleau and is evaluating other Las Vegas opportunities,” Jaffoni said Tuesday.

An attorney for Fontainebleau’s owners told the bankruptcy court that Wyomissing, Pa.-based Penn National is only willing to pay less than $300 million for the property, according to the Miami Herald. He said the project has already cost about $2 billion. Analysts have said it could take another $1 billion to $2 billion to complete the project.

Union Gaming Group principal Bill Lerner told investors Tuesday that it would take at least $1.5 billion to complete Fontainebleau, taking into account exterior work that remains, along with virtually all of the interior fit-out.

Penn would serve as a stalking horse bidder for the Fontainebleau, and would set the minimum price for the 3,889-room hotel. Other bidders could offer more.

“There’s a lot of money left to spend, and I think anyone’s price would reflect that,” Richard Mason, a New York lawyer representing Penn, told the Miami Herald. “There’s a lot of money left to spend, and I think anyone’s price would reflect that.”

In exchange for its stalking-horse position, Penn would finance the project’s bankruptcy expenses. Lenders are pushing bankruptcy Judge A. Jay Cristol to shift the bankruptcy case from a Chapter 11 reorganization to a Chapter 7 liquidation through a court-ordered sale.

Lerner thought that Penn, if successful in acquiring Fontainebleau, would take on a partner to help complete the unfinished hotel-casino complex. Penn, he said, would operate the Fontainebleau.

“Penn would have the management contract for Fontainebleau, perhaps along with fees for lending its database and programming to the property,” Lerner told investors. “In such a structure Penn can offer Las Vegas to its player database with relatively minimal capital risk yet a favorable return on investment capital.”

Contact reporter Howard Stutz at hstutz@reviewjournal.com or 702-477-3871.