Strip land to be auctioned or sold in pre-packaged bankruptcy

By Steve Green (contact)

Tuesday, Nov. 17, 2009 | 8:28 p.m.

FX Real Estate and Entertainment Inc. has disclosed plans for a pre-packaged bankruptcy in which lenders have agreed to an auction — or a sale to insiders — of the company's land on the Las Vegas Strip.

Controlled by Robert F.X. Sillerman, who also owns the "American Idol" TV show, New York-based FX accumulated 17.72 acres on the Las Vegas Strip across from CityCenter with plans to build an Elvis Presley-themed resort.

But with the recession drying up financing for such projects, FX defaulted on its $475 million mortgage loan.

Lenders sued the company in Clark County District Court this summer, and a receiver was appointed to collect rents from small businesses occupying the property.

The land in recent years been occupied by tenants such as the Harley-Davidson Cafe, Smith & Wollensky, a Travelodge hotel and the Hawaiian Marketplace.

FX discussed the prepackaged bankruptcy plan for its Las Vegas subsidiaries in a Monday regulatory filing in which it said it expects a loss of about $10.4 million for the quarter ended Sept. 30 and is running out of cash.

FX said it "does not have sufficient working capital to fund its liquidity requirements for any prolonged period and, as such, may not be able to continue as a going concern."

In a Nov. 5 filing with the Securities and Exchange Commission, FX said lenders have agreed to cancel Wednesday's scheduled trustee's sale of the property so that it instead can be auctioned for at least $256 million.

If the auction is not completed, the land would be sold for $260 million to a new company, Newco Entities, which is owned by Sillerman and two other big shareholders in FX, Paul C. Kanavos and Brett Torino.

The first lien lenders agreed to finance the prearranged sale to Newco affiliate LIRA Property Owner LLC.

LIRA agreed to post a $2.2 million deposit before filing of the prepackaged Chapter 11 bankruptcy, to fund up to $650,000 of expenses during the bankruptcy proceeding and, at closing, pay about $15 million in cash with the remainder of the purchase price to be covered by a new loan.

As of June, first-lien lenders were owed about $259 million on the mortgage while second-lien holders were owed about $195 million.

That would indicate the second-lien holders would recover little or nothing on their investment if the property is auctioned or sold as planned.