Plus side seen in Fontainebleau bankruptcy despite worker layoffs

Fontainebleau Las Vegas' decision to move its federal lawsuit against several banks that backed out of a loan agreement may help the Strip project emerge from bankruptcy sooner.

Nancy Rapoport, a bankruptcy law professor at the University of Nevada, Las Vegas, said Wednesday the $3.1 billion resort project, which filed for bankruptcy late Tuesday night in Florida, can expect a quicker resolution of its case because a bankruptcy court can bring all the parties together easier than a district or federal court can.

"Everyone has to go in front of the bankruptcy court and figure out what exactly is going on that dried up the financing," Rapoport said. "What is it exactly that somehow you let this project go so far astray? It pulls everything into one area, and the court has the ability to force anyone to answer questions under subpoena."

Fontainebleau Las Vegas and two affiliates filed for Chapter 11 bankruptcy protection late Tuesday night in U.S. Bankruptcy Court in Southern District of Florida in Miami.

The project's executives blamed the bankruptcy on a group of lenders that backed out of an agreement to loan the developer $770 million to complete construction.

Fontainebleau Resorts, the project's developer, in April filed a $3 billion federal lawsuit against the lenders, led by Bank of America and JPMorgan Chase, but moved the lawsuit to the Florida bankruptcy court when it filed Tuesday night.

Rapoport said the bankruptcy court should be able to help determine what went wrong with the project and the loan.

The lenders claim they backed out of the loan agreement after Fountainebleau defaulted on a loan. The developer denies that.

"We still don't know if we'll have an empty building or a finished building," Rapoport said. "At least we know (the developer and the banks) can't keep pushing and pulling in a bunch of different directions."

Bank of America spokeswoman Shirley Norton wouldn't comment Wednesday on Fountainebleau's lawsuit.

Rapoport said Fontainebleau still will need to come up with a good business plan and funding if it expects to emerge from bankruptcy and complete the project. That could be difficult in this economy, she said.

Jeremy Aguero, a principal with Las Vegas-based research firm Applied Analysis, believes Strip project can emerge from bankruptcy with an ownership and financing package that can work.

"While the bankruptcy is disconcerting for Southern Nevada, and certainly for the folks that have put so much time into the project, it may very well be a better process for the project to actually move forward," Aguero said.

Construction slowed in late April with 70 percent of the work done.

While both Rapoport and Aguero said the project will likely be completed, the ownership structure could be different when it emerges from bankruptcy.

"The idea of going through bankruptcy is to get into the hands of someone who can use the asset, as opposed to someone who is so financially burdened that they can't make it work," Aguero said.

Fontainebleau Resorts is controlled by Miami-based developer Jeffrey Soffer. Soffer is a principal of condominium developer Turnberry Associates.

Fontainebleau Resorts on Wednesday began cutting back on its already slashed workforce.

Approximately 60 people in the corporate offices were laid off, leaving nearly 100 employees at the corporate level, spokesman David Satterfield said.

Also, one of the project's largest investors, Crown Ltd., announced it doesn't intend to "participate in any restructuring under any bankruptcy arrangements" for Fontainebleau Las Vegas. Australian-based Crown paid $250 million for a 19.6 percent stake in Fontainebleau Resorts, which also owns a resort in Miami.

Crown reiterated what it told the Review-Journal in late April that the company "has no current intention to contribute any further equity or debt to Fontainebleau."

The mixed-use development, on the northeast corner of Las Vegas and Riviera boulevards, listed more than $1 billion in assets against more than a $1 billion in estimated liabilities in the bankruptcy filing.

The project carries nearly $2.53 billion in debt securities, according to Moody's Investor Services.

The debt includes a $700 million term loan maturing in June 2014 and $675 million in second mortgage notes maturing in June 2015.

Hours before Fontainebleau filed for bankruptcy, a group of lenders tied to $1.05 billion in loans on the project filed a lawsuit in Nevada federal court against the banks.

The lawsuit, which lists a few dozen plaintiffs, said the banks that canceled the $770 million loan jeopardized the other banks' investments by breaching the credit agreement.

Contact reporter Arnold M. Knightly at aknightly@reviewjournal.com or 702-477-3893.