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January 22, 2018

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Fontainebleau retail component seeks bankruptcy protection

Fontainebleau Resort

The Fontainebleau, construction stopped, is seen dark along the Strip. Launch slideshow »

The retail portion of the idled Fontainebleau Las Vegas casino resort filed for bankruptcy protection Wednesday -- introducing a new set of creditors and controversies to the massive case.

Fontainebleau attorneys said the three retail subsidiaries filed for Chapter 11 reorganization as part of the sales proposal and debtor in possession financing arranged with investor Carl Icahn.

As Fontainebleau's stalking horse bidder, Icahn has offered $156.2 million in cash and financing for the unfinished project -- including its retail component.

The attorneys asked the U.S. Bankruptcy Court in Miami on Wednesday to combine the retail cases with the three existing casino-resort bankruptcy cases, which were filed there June 9 after banks halted funding to the resort and construction stopped.

The subsidiaries seeking bankruptcy protection Wednesday were Fontainebleau Las Vegas Retail LLC, Fontainebleau Las Vegas Retail Parent LLC and Fontainebleau Las Vegas Retail Mezzanine LLC.

The Fontainebleau Las Vegas Retail filing listed among its unsecured creditors bankrupt Lehman Brothers Holdings Inc., owed $105.5 million, a claim Fontainebleau listed as "disputed."

Other big lenders listed as creditors are Union Labor Life Insurance Co., owed $39.3 million; PNC Financial Services Group, owed $11.2 million; and Sumitomo Mitsui Financial Group, owed $11.2 million.

The Fontainebleau Las Vegas Retail Mezzanine filing listed another $123 million owed to Lehman Brothers, again unsecured and again disputed.

The Fontainebleau Las Vegas Retail Parent filing listed no unsecured creditors.

The retail portion of the resort has been described as totaling 287,000 square feet and planned with high-end shops, restaurants and a nightclub.

The new cases mean additional disputes may be litigated in the bankruptcy court over liens filed against the retail portion of the project.

Contractors in the main casino resort bankruptcy have already filed claims totaling $467 million, which is in addition to some $1.675 billion owed by Fontainebleau to banks and bondholders.

Even before the Fontainebleau retail entities filed for bankruptcy protection, a group of contractors filed suit against Fontainebleau Las Vegas Retail, Lehman Brothers, Bank of America and Wells Fargo Bank in Clark County District Court in Las Vegas.

That lawsuit, filed Nov. 20, asserted the contractors are owed tens of millions of dollars and that their liens are superior to those of the lenders.

The lawsuit, filed by attorneys with the Las Vegas law firm of Pezzillo Robinson, alleges that work commenced on Fontainebleau in or about November 2006, but that the lenders did not record deeds of trust, liens or other encumbrances until June 2007.

"Therefore, plaintiffs' liens against the project are superior to that of the lenders pursuant to" Nevada law, the suit charges.

Plaintiffs in the suit are:

--Zetian Systems Inc. and its sister company Z-Glass Inc., claiming to be owed $7.39 million and $9.6 million, respectively.

--Graybar Electric Co., owed $207,000.

--Tracy & Ryder Landscape Inc., owed $1.591 million.

--Water FX LLC, with liens of $13.2 million and $463,000.

--Quality Fixture and Cabinet Co., owed $4.2 million.

--Derr and Gruenewald Construction Co., with liens of $4.8 million, $39,000 and $259,000.

--Sierra Glass & Mirror Co., owed $358,000.

--Morris Shea Bridge Co., owed $370,000.

--Crescent Electric Supply Co., with liens of $53,000 and $48,000.

--Integrated Mechanical Group LLC, owed $145,000.

--Hilti Inc., owed $24,000.

--Cashman Equipment Co., owed $84,000.

Lehman Brothers, Fontainebleau developer Jeff Soffer and his sister, Jacquelyn Soffer, in the meantime, are engaged in separate litigation involving another Las Vegas project.

The Soffers and three of their companies sued Lehman Brothers on Feb. 27, charging Lehman had reneged on part of a commitment to provide $1.5 billion in financing for three projects developed by the Soffers' Aventura, Fla.-based Turnberry Associates development company, where the siblings are executives.

The projects were the Fontainebleau retail project, the 93-acre Town Square shopping center in Las Vegas and the Aventura Mall in Florida.

While the Fontainebleau and Aventura financings closed, Lehman Brothers failed to provide promised long-term financing for Town Square in Las Vegas, the lawsuit charged.

The Turnberry companies said the initial $520 million in Town Square construction financing was provided principally by Deutsche Bank. Development of Town Square started in 2004 and Turnberry later sought customary long-term take-out financing as well as an additional $100 million for the project, the lawsuit said.

The Soffers asserted in their suit that at the insistence of Lehman, they personally were the borrowers in July 2007 under a $95 million "interim advance" credit facility for Town Square, with the expectation that Lehman would later include the interim advance in permanent financing.

"Lehman has now made clear that it is refusing to honor its commitment to provide the permanent financing," charged the lawsuit, filed several months after Lehman filed for bankruptcy on Sept. 15, 2008.

But Lehman Brothers, in responding to the lawsuit, denied it made representations it would provide long-term financing for Town Square and filed a counterclaim accusing the Soffers of breach of contract for failing to pay amounts due under the loan -- $72 million -- when it matured Feb. 27.

The counterclaim also alleges Turnberry Retail Holding LP, one of the Soffer companies behind Town Square, had guaranteed the loan but also has failed to pay the balance due.

That lawsuit is pending in Lehman's New York bankruptcy court.

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