Strip project is seeking bankruptcy

The rumored bankruptcy of another financially troubled Strip project became reality late Tuesday night when Fountainebleau Las Vegas and two of its affiliates filed for Chapter 11 bankruptcy protection in Florida.

The 142-page bankruptcy petition was filed about 11 p.m. EST in U.S. Bankruptcy Court in the Southern District of Florida, ending almost seven weeks of speculation about the future of the project.

The $3.1 billion mixed-use project, owned by Miami-based Fontainebleau Resorts, listed more than $1 billion in assets against more than $1 billion in estimated liabilities.

The filing said the developer has between 1,000 and 5,000 creditors.

"It is unfortunate that our lenders forced us to take this step. By reneging on the revolving credit facility, they effectively shut down the project and put thousands of people out of work," Howard Karawan, chief restructuring officer of Fontainebleau Las Vegas, said in a statement Tuesday night. "Our goal now is to secure funding to complete this world-class project and restructure our existing debt."

Fontainebleau Las Vegas has reached a provisional agreement with some of its lenders to let the developer use its available cash during its bankruptcy case. The developer said it is also in negotiations to obtain financing to recommence construction on the project.

Additionally, the developer announced it has dropped the $3 billion lawsuit it filed in Las Vegas against some of its lenders and refiled the case in the bankruptcy court where the Chapter 11 petitions were filed.

Fontainebleau’s attorneys filed the lawsuit April 23 against a group of banks led by Bank of America and JP Morgan Chase after they backed out of an agreement to provide $770 million in financing to complete the Strip project. The banks said Fontainebleau had defaulted on a loan, a claim the developer has denied.

Also, the developer has accused Deutsche Bank, which controls $80 million of the loan, of a conflict of interest because of the bank’s ownership of the competing Cosmopolitan project.

"Fontainebleau Las Vegas will continue to aggressively prosecute claims against these lenders for failing to honor their contractual commitments," Scott Baena of Bilzin Sumberg, bankruptcy counsel to the company, said. "The damage caused by the bad faith of these lenders has not only caused financial hardship to Fontainebleau Las Vegas and its employees, but also to the company’s creditors throughout the United States, when economic circumstances are such that they can least afford it."

The filing lists 20 unsecured creditors, led by Chicago-based Corporate Express Inc. with $3.4 million owed to the company.

A list of secured creditors is traditionally filed within a few days of the original filing.

The two affiliates, Fontainebleau Las Vegas Holdings and Fontainebleau Las Vegas Capital Corp., filed separately Tuesday night.

Fontainebleau Las Vegas Holdings listed less than $50,000 in assets against more than $1 billion in estimated liabilities. The filing marked between 200 and 999 estimated number of creditors.

Fontainebleau Las Vegas Capital Corp., listed similar assets, liabilities and creditors.

Steve Redlinger, spokesman for the Southern Nevada Building and Construction Trades Council, an umbrella group of 17 labor unions that had been working on the project, said the bankruptcy filing is the unfortunate culmination of the banks pulling their funding.

"The reality is the project has been in jeopardy for a few weeks now," Redlinger said. "The project has been at a near standstill without the developer being able to secure financing. The end result of the banks not living up to their original obligations is to put thousands of workers out of work."

About 3,000 construction workers were laid off in late April. Many employees in Fontainebleau Las Vegas’ corporate office were let go last month.

Redlinger said the shutdown of the project affected not only the workers laid off in April but also the thousands of people who would have been hired once the resort opened. It was scheduled to open in October.

Speculation of a bankruptcy increased when Fontainebleau Resorts’ co-founder and top executive, Glenn Schaeffer, left in late May.

Schaeffer was a former executive of Mandalay Resort Group with more than 25 years as a chief financial officer in the casino industry.

Schaeffer co-founded Fontainebleau Resorts in May 2005 with Miami-based developer Jeffrey Soffer. Soffer is majority owner of the company and a principal with condominium developer Turnberry Associates.

Fontainebleau Las Vegas was designed as a 3,815-room hotel-condo-casino project with a large retail center, restaurants, spa and other amenities.

Fontainebleau Miami Beach, which is a separate legal entity, is not included in or affected by the filing, the company said.

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

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