About 30 floors of the 63-story tower anchoring the development have been fully completed and require air conditioning, while the top of the building is largely without a roof. Penn's offer disclaims liabilities for Fontainebleau's existing financial burden, which includes an estimated $1.6 billion in bank loans and bondholder debt, and several hundred million of contractors' liens, claiming the project's value is no longer worth any more than the estimated $1.46-billion cost to complete the project. The agreement calls for a vast majority of the existing contracts and leases related to the project to be rejected.

"Despite the impressive scale of that building, our view is its value is little to nothing because the cost to complete [the project] is at the edge of its value in our judgment," Penn National chief executive Peter Carlino told analysts last month. "And around that we have a very, very, very disciplined sense of what we will accept and what we will not, and so it kind of goes our way or it doesn't. It's as simple as that. We chase nothing, we'll stretch for nothing and this process will play out or it won't."

A stalking horse is meant to prevent "low-ball" offers. In exchange, Penn National gets the inside track and a guarantee via a break-up provision that its expenses will be repaid if it loses out to another buyer. As the stalking horse, Penn National's bid would be the standard by which any other bids to purchase the project would be evaluated. Other interested bidders who submit qualifying offers would be permitted to participate in the auction. Both Fontainebleau and Penn National are asking the bankruptcy court to approve the offer, set a bid deadline of Jan. 15, 2010, and an auction date of Jan. 21, 2010.

Pursuant to the DIP financing agreement, which Penn has arranged through as yet unidentified lenders, NGVI would provide the resort with a revolving credit facility of approximately $51.5 million through Feb. 10, 2010. Any borrowings from the facility are required to used to "stabilize the unfinished buildings at the project and on other budgeted expenses," according to SEC filings. If NGVI ends up with the project, the existing Fontainebleau ownership would be released from any obligation related to the DIP financing. If NGVI does not end up with the project, the existing ownership would have to immediately pay back the loan plus an additional $1.5 million as a deal-termination fee.

Penn National's Carlino said last month only about $500 million to $600 million of financing would be available to complete the project, which means any buyer group would need approximately $1 billion of cash to complete the project. As a result, if it were to gain control of the project, it would keep it separate from the parent company.

"We think we can bring a lot to the Fontainebleau project with a properly executed development--an enormous amount, that nobody else in the US could bring, period," Carlino said, adding that to want to acquire the asset one has to have a positive view about the future of Las Vegas. "It is indeed the entertainment capital of the world and the current economic crisis will not last forever. In the short run--a couple of years or several years--there could still be a great deal of pain, but Vegas will in time be fine. The trick of course is staying alive until it gets there."

Fontainebleau, meanwhile, is hoping the stalking horse bid leads to higher offers. A group of contractors that have filed liens against the property has said it is looking for investors and lenders to team with in making their own bid that includes its members' liens being paid.

"While the Debtors received indications of interest in the Project from several potential investors, only [Nevada Gaming Ventures] has presented the Debtors with a definitive asset purchase agreement for the purchase of all or substantially all of their assets," Fontainebleau attorneys said in a court filing. "The debtors…are both hopeful and optimistic that finalizing the purchase agreement marks the beginning of a competitive sale process that will drive substantial incremental value to the debtors' estates and their creditors over and above the purchase price offered by [Nevada Gaming Ventures]."

Fontainebleau's developer heretofore is an affiliate of Miami-based Turnberry Associates, which is led by Jeffrey Soffer. Along with 3,800 hotel rooms in a 737-foot-tall tower, Fontainebleau Las Vegas is slated to include a 100,000-square-foot casino; 27 restaurants, nightclubs and bars; 300,000 square feet of retail space; a 3,200-seat performing arts center; 60,000-square-foot spa; and 390,000 square feet of conference area and meeting rooms.

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