Bank of America wants change in Fontainebleau bankruptcy plan

By Steve Green (contact)

Published Thursday, June 11, 2009 | 7:10 p.m.

Updated Friday, June 12, 2009 | 2:14 p.m.

Bank of America moved to protect the interests of bank lenders Thursday in the Fontainebleau resort bankruptcy case, with B of A seeking a revision in a plan by Fontainebleau to use $201 million of cash for operating expenses during the bankruptcy process.

When Fontainebleau Las Vegas LLC and its affiliates filed for bankruptcy protection Tuesday in Miami, they proposed using those funds to cover weekly expenses totaling $1.3 million to $1.9 million. Even though construction on the $2.9 billion resort has nearly ground to a half, Fontainebleau said it still has expenses including payroll, bills from vendors and insurance costs.

"Neither B of A, nor, to its knowledge, any of the revolving lenders (banks) participated in the negotiation of the terms of the proposed order attached to the cash collateral motion," Bank of America lawyers said in court papers that seek additional protection in the bankruptcy case for B of A and the other banks.

"Neither B of A nor the revolving lenders have consented to the terms of the cash collateral order. The proposed cash collateral order was negotiated by a term lender steering group composed of term lenders, and its terms reflect a bias in favor of the term lenders over the interests of the revolving lenders."

The B of A filing highlighted a rift between the term lenders and the banks, which had committed to funding a $790 million revolving loan but then shut down financing for the project this spring for undisclosed reasons.

In all, the term and revolving lenders have more than $1 billion at stake in the bankruptcy case, court papers show. On top of that, Fontainebleau issued $675 million in second mortgage notes to finance the resort and it's unclear how or whether those noteholders will be paid.

The revolving lenders' refusal to continue funding the project was blamed for the virtual halt of construction and the bankruptcy, and some of the term lenders sued the revolving lenders over the issue Tuesday. They charged that the collateral securing their loan had been reduced in value by the failure of the revolving lenders to continue funding Fontainebleau.

Bank of America and the other banks have not yet responded to that lawsuit, which is in addition to a lawsuit they face in the bankruptcy court filed by Fontainebleau over the funding issue.

Bank of America's objection to the plan was rejected by the court Thursday, Fontainebleau spokesman Lance Ignon said Friday. The B of A attorney who filed the objection could not immediately be reached for comment on whether the bank would pursue the matter. A final hearing on Fontainebleau's cash collateral plan is set for June 30.

Also, Fontainebleau said it received Bankruptcy Court approval Thursday of routine first-day motions, including permission to pay employees wages, salaries and benefits incurred before and after the company voluntarily filed for Chapter 11 reorganization.

The company said it also received interim authorization to use up to $8.2 million to fund post-petition obligations in the ordinary course of business.

Bankruptcy Judge A. Jay Cristol also scheduled a hearing for June 17 to consider the company’s request for the establishment of a fast-track schedule in its lawsuit against the banks, Fontainebleau said.

"We are pleased with the court’s quick approval of our first-day orders," Howard Karawan, chief restructuring officer of Fontainebleau Las Vegas, said in a statement. "This is an important initial step today toward getting Fontainebleau Las Vegas back on track."