Fontainebleau Contractors Object to Penn's Bid

LAS VEGAS-Contractors claiming to be owed $424 million for their work on the stalled Fontainebleau project at the north end of the Las Vegas Strip late last week objected to Penn National’s combined $102-million stalking horse bid and debtor-in-possession loan, which has been approved by the debtors but still must be approved by the bankruptcy court. If approved by the court and affirmed as the winning bid, it would result in the contractors’ claims not being paid.

The contractors’ legal counsel argues that the terms of the bid and the DIP facility give Penn National an unfair advantage over would-be competing bidders. Moreover, they argue that neither the DIP facility nor the sale may be approved over the objection of the statutory lienholders “as a matter of law” and, “based upon the onerous and commercially unreasonable terms proposed by the prospective buyer, the M&M Lienholders and Contractor Claimants do not consent.”

Penn’s proposed offer, submitted early last week, includes a $50-million purchase offer for the project and $51.5 million in debtor-in-possession financing that would be forgiven if Penn is awarded the property. The contractors argue that if the proposed stalking horse bid is approved by the court then any competing bidder–”in addition to having to repay the entire DIP Credit Facility, which includes all of the Proposed Stalking Horse’s reasonable out-of-pocket expenses, accrued interest, and the 2% “Upfront Fee”–would also be required to pay an additional fee equal to 5% of the DIP Credit Facility, or approximately $2.57 million as the price of admission, before the breakup fee is even taken into account.