Anchored by a 63-story hotel tower, the 3.4-million-square-foot, $3-billion project at the north end of the Las Vegas Strip stalled at 70% completion after revolver lenders, who had agreed to provide final-stage financing for the project, nixed the deal this spring, claiming Fontainebleau Las Vegas LLC had defaulted on its credit agreement. The parties are in mandatory mediation related to the lawsuit filed by Fontainebleau against the final-stage lenders concurrent with the bankruptcy court proceedings.

Anchored by a 63-story hotel tower, the stalled 3.4-million-square-foot project sits 70% complete at the north end of the Las Vegas Strip. The developers, first mortgage lenders and others have invested more than $2 billion of debt and equity in the project to date.

The developer states in Monday's filing that it has been "intensely focused on forging a transaction to facilitate completion of the project independent of resolution of the revolver litigation" since a district court judge in late August denied its request for summary judgment against the revolver lenders, making it "less likely that the mediation process will result in a global resolution," states the filing.

That said, with all the money lost by lenders on recent Las Vegas acquisitions and developments the developer adds that "the sale of the project represents a complex transaction which is further complicated by both the present inability of the [developer] to include the retail component in a transaction because, among other reasons, retail remains outside of bankruptcy and the difficulty that any purchaser will face in the current credit environment obtaining financing to complete the project."

The statements were made in a motion by the developer seeking authority to utilize $2.9 million of $3.3 million in cash of debtor-in-possession financing over the couple of weeks that the bankruptcy court and the lenders previously authorized it to spend but that has not yet been spent. The developer was authorized to use a total of $20 million but the deadline for its use of the money is Thursday, Sept. 17. The motion seeks use of the funds through Oct. 5.

The additional three-week period to use the remaining funds in the DIP account "to preserve and protect the project" while it continues to negotiate a transaction with the potential buyer that, if successful, the developer says will enable it to present proposed DIP financing to the court along with a blueprint for a plan and/or sale process before October 5, 2009. Lenders have filed a statement objecting to the developer's use of the cash collateral after this week's deadline.

"Even if DIP financing leading to a transaction ultimately does not materialize and the Debtors find themselves without financing after October 5th, no party in interest will be any worse off than they expected to be as a result of the Fourth Interim Cash Collateral Order," Fontainebleau Las Vegas states in its filing. "On the other hand, if the relief requested is denied, it cannot be gain said that these cases are bound for a very different outcome that very well may be catastrophic for most, if not all, constituencies."

While the potential buyer remained unidentified some names bandied about in the media include Penn National Gaming and Apollo Management LP. Penn, an owner of casinos and racetracks mostly in the Midwest and East, has been looking to enter the Vegas market. Apollo is the investment company involved in the $28-billion privatization of Harrah's Entertainment.

The developer behind Fontainebleau is Miami businessman Jeffrey Soffer. Fontainebleau LV's three development entities--Fontainebleau Las Vegas, Fontainebleau Holdings LLC and Fontainebleau Las Vegas Capital Corp.--filed for protection from creditors under Ch. 11 of the US Bankruptcy code on June 9. The lawsuit against the final-stage lenders was initially filed in Clark County District Court in April. It was subsequently moved to federal district court in Las Vegas and then dropped altogether by Fontainebleau in order to be re-filed in Miami bankruptcy court as part of its Ch. 11 bankruptcy case. It was later sent back to federal district court, this time in Miami.

Led by Ban k of America, the final-stage lenders named in Fontainebleau's lawsuit are JPMorgan Chase, Merrill Lynch Capital Corp., Barclays Bank PLC, Deutsche Bank Trust Co. Americas, Royal Bank of Scotland PLC, Sumitomo Mitsui Banking Corp. New York, Bank of Scotland, HSH Nordbank AG, Camulos Master Fund LP and MB Financial Bank NA.