Fontainebleau judge details guidelines for credit bid

By Steve Green

Tuesday, Dec. 8, 2009 | 5:56 p.m.

The Fontainebleau Las Vegas bankruptcy judge on Tuesday gave contractors 10 days to come up with more than $200 million in cash and a bond if they want to continue pressing for the right to buy the casino resort project with a credit bid.

During a hearing Tuesday in Miami’s bankruptcy court, Judge A. Jay Cristol granted a motion to stay proceedings in the case so the contractors could appeal rulings against credit bidding – but only if they come up with a bond of $156 million and another $51 million in cash.

The bond would cover value potentially lost by the Fontainebleau estate should the contractors’ appeal interfere with the sale of the resort.

The $51 million would replace about that amount of money that financier Carl Icahn has agreed to loan Fontainebleau as part of his $156.2 million stalking horse bid.

Cristol on Monday rejected a motion by the contractors that they be allowed to make a credit bid, noting uncertainty about which contractors’ and lenders’ liens are in first position, second position and further down the chain.

Last week, lenders owed $1.048 billion sued hundreds of contractors charging their liens are inferior to the liens of Bank of America and other lenders.

The contractors claim to be owed some $467 million.

One of their attorneys, Greg Garman of the Las Vegas office of the law firm Gordon Silver, said the litigation likely will take months as contracts, claims and change orders will be examined.

Since 342 companies were sued individually, they will each need to have lawyers represent them in time-consuming proceedings, he said.

Also Tuesday, Cristol denied a motion by contractors that the disputes between contractors and lenders over liens against the resort immediately be sent to Nevada, where they could be sorted out in state court.

Garman said Nevada courts are uniquely qualified to handle massive lien disputes with plenty of experience in cases involving the Venetian and other resorts.

Cristol said those disputes can be sorted out later, after the resort is sold at auction next month, and it can be decided later if the disputes will be decided in Miami where Fontainebleau’s development company is based, in New York where banks are based or in Las Vegas.

"We (first) need to get this project sold and get a pot of money (to distribute to creditors)," Cristol said.

The pot is likely to give creditors just pennies per dollar owed -- besides the contractors' claims, banks and bondholders are owed some $1.675 billion.

But so far, Icahn's $156.2 million is the most offered for the project as the recession and problems with the development have wiped out its value.

Regardless of what happens with the contractors’ appeal, Garman said they’ll continue to press to recover some of what they are owed.

"We’re going to scrap to the end of this case as to whose money this is," he said.