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July 22, 2014

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Deadline for Fontainebleau bids set for Friday

Auction would determine buyer if Carl Icahn’s $156.2 million offer is topped

Fontainebleau Resort

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

Bids are due Friday from companies and individuals wanting to buy the bankrupt Fontainebleau casino-resort development project on the Las Vegas Strip.

Parties desiring to take over the 70-percent-complete, 3,815-room resort will have to offer more than the $156.2 million currently offered by "stalking horse bidder" and investment veteran Carl Icahn.

Jeff Truitt, the examiner appointed to supervise Fontainebleau, plans to announce any qualified bids on Jan. 19.

If a qualified bid exceeds Icahn's offer, an auction is set for Jan. 21.

Contractors claiming to be owed $467 million for work on the resort had hoped to submit a "credit bid," with their claims serving as currency, as opposed to a cash bid.

But because of uncertainties as to whether lenders or contractors hold first-priority liens on the project, Bankruptcy Judge A. Jay Cristol rejected their motion to credit bid.

Last month, he gave them the opportunity to appeal his ruling if they posted a bond equal to Icahn's bid, but the contractors chose not to post the bond. The bond would have covered potential losses to the bankruptcy estate because of the appeal.

The contractors and lenders are now engaged in litigation that may drag on for years to determine who will receive the cash proceeds from this month's bidding and auction process.

Interest in acquiring Fontainebleau has been limited because of difficult economic conditions in the gaming industry and the hundreds of millions of dollars, or billions of dollars, needed to complete the resort.

Nevada gaming revenue for the fiscal year ended June 30 fell 13.7 percent to $10.8 billion. The July-October 2009 win was down 10.6 percent to $3.4 billion.

The hotel room inventory in Las Vegas was up 2.8 percent year-over-year in October, to 141,489 rooms -- but occupancy was down 1.2 percentage points from a year ago to 82.6 percent.

The recession and the addition of new supply within the past two years at the Palazzo, Trump Tower, Palms Place, South Point, Aliante Station, Eastside Cannery, Encore, M Resort, the Hard Rock, Golden Nugget, Planet Hollywood and CityCenter have served to dampen prospects that Fontainebleau, which had been scheduled to open in October 2009, would have achieved room rates, occupancy levels and gaming and other revenue sufficient to meet financial projections.

Icahn, who also controls Las Vegas-based gaming company Tropicana Entertainment LLC, hasn't disclosed plans for Fontainebleau should he acquire it.

It's unknown if other bids will come in for Fontainebleau, though Truitt said in a report Friday that "certain parties" have signed non-disclosure agreements and have been provided access to confidential Fontainebleau financial data.

Earlier interest in acquiring the project was shown by Penn National Gaming, which was outbid by Icahn to be the stalking horse bidder; and Apollo Global Management, one of the companies that controls Harrah's Entertainment Inc.

Once billed as a $2.9 billion resort, banks and bondholders are owed $1.675 billion in the bankruptcy case, in addition to the $467 million claimed by contractors.

But an appraisal submitted last summer by Bank of America found the project would be worth just $1.764 billion if it opened in May of this year -- far less than its debt and projected completion costs.

Construction on the resort was halted and it filed for bankruptcy reorganization last summer after Bank of America and other lenders cut off funding, citing cost overruns and other problems.

Fontainebleau, developed by Miami businessman Jeff Soffer and his Turnberry Associates company, was unsuccessful in a lawsuit seeking to force B of A and other lenders to provide $656 million needed to continue construction.

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