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April 25, 2014

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Fontainebleau lenders sue construction companies over liens

Fontainebleau Resort

The Fontainebleau, construction stopped, is seen dark along the Strip. Launch slideshow »

Lenders owed $1.048 billion in the Fontainebleau Las Vegas bankruptcy case sued hundreds of construction companies Wednesday as disputes escalated over liens filed against the project by lenders and contractors.

The 342 contractors and other mechanics lien holders, some of which claim to be owed $467 million for work on the mothballed casino resort on Las Vegas Boulevard, have been pressing for the right to take over the project with a credit bid for what they are owed.

Financier Carl Icahn, in the meantime, is moving ahead with plans to buy the project during an auction next month. Icahn has offered $156.2 million in cash and financing as the auction's stalking horse bidder.

Regardless of which entity acquires the 70 percent-complete resort, investors, lenders, contractors and other creditors potentially face huge losses because the auction is expected to yield just pennies per dollar owed by Fontainebleau.

Besides the $1.048 billion owed to banks and other syndicated lenders such as investment funds, Fontainebleau owes another $675 million to bondholders.

Construction on the 3,815-room casino resort and its retail complex was halted this summer after Bank of America and other lenders stopped lending to Fontainebleau because of cost overruns and other problems.

Wednesday's lenders' lawsuit was filed in Fontainebleau's bankruptcy case in Miami by attorneys for the lenders' administrative agent, Wilmington Trust FSB, a federally-chartered savings bank that is part of Wilmington Trust Corp.

The lenders, including Bank of America, charge in the lawsuit that the liens filed by the Fontainebleau subcontractors are inferior to liens filed by the lenders in 2005 and 2007 because:

--The lenders and Fontainebleau explicitly agreed that the lenders would loan money to the project only on the condition that the contractors' interests would be subordinated to the lenders' interests.

"The mechanic lien claimants, which expressly agreed to subordinate their interests to `any lender' on the project, now dispute the enforceability of those agreements under Nevada law," the banks complained in their lawsuit.

--General contractor Turnberry West Construction Inc. and its subcontractors were required to obtain performance and payment bonds to ensure they were paid if Fontainebleau failed to pay them and that they obtained more than $500 million in bonds -- but have failed to make claims against those bonds.

The lawsuit also asserts some the liens are invalid or were filed in error because:

--Some contractors were not properly licensed

--Some of the liens failed to allocate claims between different Fontainebleau structures and improvements

--Some of the liens overstate the amount due

--Some of the liens involve work when the project was not properly permitted

--Some of the liens involve defective work

The lawsuit asks the bankruptcy court to declare the lenders, based on their credit agreement with Fontainebleau, have claims superior to those of the contractors.

The latest lawsuit brings to at least five the number of lawsuits over Fontainebleau contractors' liens -- four filed by contractors are pending.

Complicating the banks' case is the involvement of Turnberry West Construction, which like Fontainebleau is controlled by Miami developer Jeff Soffer and his Turnberry Associates company.

Soffer's Turnberry West Construction this summer filed one of the contractor lien lawsuits against Soffer's Fontainebleau Las Vegas casino resort company. That lawsuit sought to invalidate the terms in the credit agreement subordinating the rights of contractors to those of the lenders.

The lenders, in their lawsuit Wednesday, said they would move to consolidate their case with the Turnberry West lawsuit and that they plan to file a counterclaim against Turnberry West.

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