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Carl Icahn to take ownership of Fontainebleau Las Vegas resort

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Sam Morris / Las Vegas Sun

The Fontainebleau, construction stopped, is seen along with its marshalling yard on the Strip.

Updated Wednesday, Jan. 20, 2010 | 7:08 a.m.

Fontainebleau Resort

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

Carl Icahn

Fontainebleau

Carl Icahn is expected to take over ownership of the bankrupt Fontainebleau Las Vegas resort after two potential competitors vying to buy the property failed to submit qualifying bids as of a 5 p.m. deadline Friday.

The U.S. Bankruptcy Court in Miami, where Fontainebleau filed for bankruptcy protection last year, is expected to conduct a hearing Jan. 27 to approve the sale of the Las Vegas Strip property to Icahn, who bid $156.2 million for it last year.

In an interview today, one of the competing bidders said his bid was shot down by an independent examiner appointed to oversee the sale of the resort.

San Francisco-based real estate investor Luke Brugnara said he entered a higher bid of $170 million, backed by a New York hedge fund, according to bidding procedures posted by the bankruptcy court. Brugnara said he was told by the examiner that he didn't submit the proper paperwork by today's deadline.

Brugnara said he would have needed at least 30 days to arrange financing – a reasonable request in today's economy. The examiner, he said, wanted to close the deal as soon as possible in order to pay loans coming due.

"What you don't want is a fire sale," he said. "Expediency is secondary to the recovery of maximum dollars for the benefit of impaired creditors."

And yet, Icahn – known for his strategy of buying depressed assets in down cycles – is one of few investors able to immediately dip in his pocket in any economy. (With an estimated net worth of $9 billion, Icahn is ranked No. 43 on Forbes' list of the world's wealthiest people.)

While bankruptcies in years past commonly attracted many competing bids, the relative lack of interest in the Fontainebleau may be the latest sign that loans – even small ones – are hard to come by in the casino industry, according to financial analysts.

Since the spectacular collapse of the housing and stock markets last year, banks have begun loaning money for the construction and expansion of smaller casinos in parts of the country with less competition, analysts say. Lenders are especially reluctant to lend money for new casinos in Las Vegas, which is saturated with hotel rooms at a time of depressed demand.

Brugnara, indicted by a federal grand jury in April 2008 for allegedly filing false tax returns, said the rejection of his bid is unrelated to previous run-ins with federal and state regulators.

According to the U.S. Attorney in San Francisco, Brugnara failed to report more than $45 million in capital gains from the sale of multiple properties, including the former Silver City casino in Las Vegas. Last year, Brugnara pleaded guilty to filing a false tax return in 2000 but rescinded his plea agreement and fired his attorney, court documents show.

Brugnara said the claims against him are false and that he's "not worried" about his case, which is set to go to trial next month.

Nevada casino regulators denied Brugnara a gaming license in 2001, citing a failure to file federal tax returns and other major blunders. Such denials are rare, as regulators generally allow applicants to withdraw their applications before a vote so as not to hurt an investor's future chances of entering the casino business.

The Silver City's gaming license expired without a new owner and the casino - a tired relic from the 1970s – was demolished. Brugnara still owns a piece of the land it sat on. His casino plans dashed, he built a retail center with a Ross and Walgreens instead – cheeky counterpoints to nearby luxury resorts.

The various parties involved in the Fontainebleau bankruptcy, including bankers and contractors, in November approved the rules by which potential buyers could submit bids for the property.

Among other things, bidders were required to enter a deposit and submit an offer that was at least $1 million over Icahn's bid.

Icahn could not be reached for comment. In a court filing, attorneys for Examiner Jeff Truitt said Truitt received two "submissions" for Fontainebleau on the bid deadline. The filing didn't identify the parties that made the submissions.

"However, for various reasons, including that neither of the submissions were accompanied by either the requisite deposit or satisfactory evidence of the financial ability to close a sale transaction, the examiner has determined that the submissions are not qualified bids," the court filing said. "Accordingly, the only qualified bid received by the examiner is the Icahn Nevada Gaming Acquisition LLC bid. Based on the foregoing and in accordance with the bidding procedures, there will be no auction for the assets."

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