Last month, U.S. Bankruptcy Judge A. Jay Cristol announced his plans to appoint an examiner to organize the sale of Fontainebleau Las Vegas. Penn National Gaming bid on the resort last month, but reports indicate that the offer was for less than $300 million. Fontainebleau is valued at around $3
billion.

"The court believes it is more expeditious to proceed with any potential sale as soon as possible rather than to wait until October 28, when a trustee, if appointed, would be required to expend a significant amount of time to obtain counsel, familiarize himself or herself with this case and effectuate a sale," Cristol said in an order last month.

Penn National is considered the stalking horse bidder in the potential sale, meaning that the company has set the minimum price. Other companies can offer more, but the fact that the project still requires approximately $1.5 billion to complete construction must be taken into consideration.

"There's a lot of money left to spend, and I think anyone's price would reflect that," Penn National lawyer Richard Mason told the Miami Herald.

In its bid, Penn National said it would provide $16 million to finance the costs of Fontainebleau's bankruptcy. By choosing to appoint an examiner in the case, Judge Cristol decided to reject lenders' bids to move the case from Chapter 11 to Chapter 7.

In a Chapter 7 bankruptcy, Cristol would have to appoint a trustee to oversee liquidation. Cristol said appointing an examiner would be more cost-effective, and would also clear up the conflict between Fontainebleau and its creditors, who have been unable to reach a compromise over financing for the property.

Penn National is interested in purchasing Fontainebleau because the gaming company has no presence in Las Vegas, and has the capital to purchase a property, but wants to limit its exposure in the costs to complete the property.

But even as Penn makes its offer, analysts agree the resort is worth very little compared to the amount it needs to finish construction. The disparity in numbers is striking:
    
• Developers have spent approximately $2 billion on the project thus far;

• subcontractors have yet to be paid about $375 million for work done in recent months; and

• the resort would need much more money to be completed.

"Fontainebleau's not worth anything until you finish it," Penn National CFO Bill Clifford told analysts at a September conference.

By GGB Staff

Staff writers for Global Gaming Business magazine. Las Vegas, Nevada.