Fontainebleau Judge Wants Quick Sale, Not Ch. 7

LAS VEGAS-The judge overseeing the Fontainebleau Las Vegas bankruptcy case wants to force a quick sale of the stalled $2.9-billion development at the north end of the Las Vegas Strip. US Bankruptcy Judge A. Jay Cristol in Miami called both sides to his courtroom this Wednesday to show cause why he should not appoint an independent examiner to make it happen. Construction on the 63-story, 3,800-room casino resort was halted in the spring with the project approximately 70% complete.

The order comes shortly after the project’s main lenders, who have $1 billion invested in the project, filed a motion to have the Ch. 11 reorganization converted to Ch. 7 liquidation, which shift control to a trustee, saying an additional $16 million of its cash collateral has been depleted during the bankruptcy process with “no meaningful progress” having been made toward the debtors’ reorganization. A hearing on the motion is currently scheduled to be heard on Oct. 28, 2009. Just prior to the lenders’ motion, in asking for continued access to the lender’s cash collateral, Fontainebleau’s attorneys told the judge it was actively in negotiation for a recapitalization of the project. Judge Cristol likely will get a status report on Wednesday.

“The record in this case indicates that the parties to these proceedings are not cooperating with one another.” Judge Cristol states in his order. “The Debtors have indicated they have made efforts to arrange a sale of the Las Vegas Project, but the Term Lenders appear to be concerned about a possible conflict of interest and accordingly filed the motion to convert. The Court believes it is more expeditious to proceed with any potential sale as soon as possible rather than to wait until Oct. 28, 2009 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. It also appears more economical to immediately appoint an Examiner than to appoint a Trustee whose fees and expenses would likely far exceed the costs and expenses of an Examiner.