Published Tuesday, Nov. 17, 2009 | 7:15 a.m.
Updated Tuesday, Nov. 17, 2009 | 10:09 a.m.
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Penn National Gaming Inc. on Monday made a $50 million "stalking horse" bid to buy the stalled Fontainebleau casino-resort in Las Vegas, with plans to spend another $1.46 billion to complete the project.
Penn's offer, filed in Miami's bankruptcy court, sets in place an auction process in which other investors will have an opportunity to bid for the property.
Fontainebleau also said in a court motion Monday that Penn National and unnamed lenders have agreed to provide $51.5 million in debtor-in-possession financing to cover its costs since filing for bankruptcy and to keep the company afloat during the sales process.
Court papers indicated Penn National has committed $50 million to buy the project, less unspecified "remediation costs" and costs to cure defaults on leases and contracts it would inherit.
The Penn affiliate offering to buy the project is Nevada Gaming Ventures Inc. Penn for some time has been looking at opportunities to enter the Las Vegas gambling market, the nation's largest.
In a regulatory filing, Penn said that if it purchases the resort for the $50 million, less the adjustments, Fontainebleau will not have to re-pay the debtor-in-possession loan.
If the deal doesn't go through, Fontainebleau will have to repay the loan and under certain circumstances agreed to pay Penn National a break-up fee of up to $1.5 million.
Other companies or individuals not currently active in the Las Vegas gaming market may team up with Penn as investors or financing sources for Fontainebleau, Fontainebleau said in court papers Monday.
Fontainebleau is proposing a Jan. 15 deadline for competing bids for the project.
Penn National, based in Wyomissing, Pa., agreed in Monday's sales contract that the target completion cost for the project is $1.46 billion and that it would share with Fontainebleau's owners any cost savings achieved if the project comes in at less than that amount.
Approval of the Penn deal is not a sure thing, as Penn in the contract disclaims liabilities for Fontainebleau's existing bank loans, bondholder debt and contractors liens.
A group of contractors, believed to be owed $350 million to $400 million, has said it's looking for investors and partners to team up with in acquiring the project so its members' liens can be paid.
Executives and attorneys for Fontainebleau, Penn National and the bankruptcy case's examiner have spent weeks crafting Monday's 82-page sales agreement and it's unclear -- given the depressed state of the gaming industry -- whether other potential investors will step up to commit the time and money necessary to make a competing bid.
But attorneys for Fontainebleau said they're hopeful Monday's bid is not the only offer for the project, which was developed by affiliates of Miami-based Turnberry Associates. Turnberry is known in Las Vegas for developing high-rise luxury condominiums and the Town Square Shopping Center.
"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 attorneys said in Monday's court filing.
Once valued at $2.9 billion, $1.675 billion has been borrowed against the 3,815-room Fontainebleau, where construction shut down this summer after Bank of America and other big banks canceled a loan agreement because of cost overruns and other problems.