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Fontainebleau developer files for bankruptcy; more jobs cut

Official: Resort hopes to secure funds to finish project, restructure debt

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Justin M. Bowen

The Fontainebleau Resort on the north end of the Las Vegas Strip is shown under construction in April.

Updated Tuesday, June 9, 2009 | 9:21 p.m.

Fontainebleau Resort

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

The developer of the stalled Fontainebleau resort on the Las Vegas Strip filed for bankruptcy protection Tuesday in Miami and disclosed more jobs will be cut at the company.

Fontainebleau has been in a dispute with banks that refused to provide financing to continue the project over an unspecified event of default in a loan agreement. Reports have suggested the resort faced cost overruns, liens were piling up against it and that its financing was difficult for the banks because of a lack of condominium sales at the resort. In addition, a contractor sued the company alleging mismanagement and a key executive and founder, Glenn Schaeffer, resigned as chief executive on May 29 for undisclosed reasons.

Fontainebleau Las Vegas LLC and two of its affiliates (Fontainebleau Las Vegas Holdings LLC, Fontainebleau Las Vegas Capital Corp.) said they filed voluntary Chapter 11 reorganization petitions.

“The decision to file for Chapter 11 was the direct result of certain lenders having refused to honor their contractual commitments to provide nearly $800 million in construction funding for the $2.9 billion resort-casino project, which is 70 percent complete,'' the company said.

“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,” said Howard Karawan, chief restructuring officer of Fontainebleau Las Vegas. “Our goal now is to secure funding to complete this world-class project and restructure our existing debt.”

Fontainebleau Las Vegas said it has reached a provisional agreement with a group of its non-defaulting lenders for the use of cash for the administration of its bankruptcy case, and is simultaneously in negotiations to obtain financing to recommence construction at the project. The near-shutdown of the project has resulted in the loss of some 3,000 construction jobs.

And Fontainebleau, which itself laid off about 40 employees May 18, said Tuesday another 56 employees are being laid off in conjunction with the bankruptcy filing. That will leave about 100 employees remaining at the development company.

Turnberry West Construction Inc., the project’s general contractor and builder of several high-rise condominium complexes in Las Vegas, is not included in the filing.

Fontainebleau Las Vegas also announced that it withdrew without prejudice its $3 billion lawsuit in Las Vegas federal court against certain lenders and refiled the case in the U.S. Bankruptcy Court in the Southern District of Florida, Miami Division, where the Chapter 11 petitions were filed.

Fontainebleau Las Vegas originally filed the lawsuit on April 23 against Bank of America, JPMorgan Chase Bank, Deutsche Bank Trust Company Americas and certain other lenders after Fontainebleau said they reneged on their contractual commitments to provide the company with almost $800 million in prearranged funding. The lawsuit was amended on May 12 to include allegations that Deutsche Bank Trust Company Americas was “seeking to destroy the Fontainebleau in order to minimize competition” with the under-construction Cosmopolitan Resort and Casino on the Las Vegas Strip, which is wholly owned by a Deutsche Bank subsidiary.

Those banks that have discussed the case have denied wrongdoing, but for the most part they have declined comment as they have faced public criticism and political pressure to keep the project alive.

No one has publicly disclosed the alleged event of default that caused the banks to stop financing for the project.

“Fontainebleau has not been told what the event of default is,” spokesman Dave Satterfield said Tuesday.

"Fontainebleau Las Vegas will continue to aggressively prosecute claims against these lenders for failing to honor their contractual commitments," said Scott Baena of Bilzin Sumberg, bankruptcy counsel to the company. "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 parent company of the Turnberry companies is based in Miami, which is why the court filings were made there. Satterfield said the transfer of the lawsuit against the banks to the bankruptcy court should expedite the handling of the dispute.

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