Penn Makes $50M Offer for $3B Fontainebleau

LAS VEGAS-Penn National Gaming made its formal “stalking horse” bid this week for the unfinished Fontainebleau hotel, resort and casino here, setting the stage for a bankruptcy auction in January, according to an SEC filing Tuesday morning. The Wyomissing, PA-based casino operator, which has been looking for a way into the local gaming market, says it offered $50 million for the estimated $3-billion development that sits 70% complete at the north end of the Las Vegas Strip. The company also says it has arranged $51.5 million of interim debtor-in-possession financing that Fontainebleau would not have to pay back if Penn National ends up acquiring the development. Both offers require bankruptcy court approval.

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.”