The order comes shortly after the project's main lenders, who have $1 billion invested in the project, filed a motion to have the Ch. 11 reorganization converted to Ch. 7 liquidation, which shift control to a trustee, saying an additional $16 million of its cash collateral has been depleted during the bankruptcy process with "no meaningful progress" having been made toward the debtors' reorganization. A hearing on the motion is currently scheduled to be heard on Oct. 28, 2009. Just prior to the lenders' motion, in asking for continued access to the lender's cash collateral, Fontainebleau's attorneys told the judge it was actively in negotiation for a recapitalization of the project. Judge Cristol likely will get a status report on Wednesday.

"The record in this case indicates that the parties to these proceedings are not cooperating with one another." Judge Cristol states in his order. "The Debtors have indicated they have made efforts to arrange a sale of the Las Vegas Project, but the Term Lenders appear to be concerned about a possible conflict of interest and accordingly filed the motion to convert. The Court believes it is more expeditious to proceed with any potential sale as soon as possible rather than to wait until Oct. 28, 2009 when a Trustee, if appointed, would be required to expend a significant amount of time to obtain counsel, familiarize himself or herself with this case and effectuate a sale. It also appears more economical to immediately appoint an Examiner than to appoint a Trustee whose fees and expenses would likely far exceed the costs and expenses of an Examiner.

"The Court therefore believes it is in the best interest of the estate and all parties to appoint an Examiner at this time to examine, negotiate and supervise a sale of Debtors' assets pursuant to 11 U.S.C. §363. The opinion of the Term Lenders regarding the appointment of an Examiner should be given substantial weight as the Term Lenders are the holders of the largest secured claim(s) and have a lien on the cash collateral."

Fontainebleau Las Vegas, which has not yet responded to the term lenders motion, disclosed recently that it is in talks with potential investors, one of which is believed to be Penn National Gaming. In arguing for its motion, term lenders allege that the reorganization process has been stifled due to "pervasive conflicts of interest that exist among the debtors on the one hand, and their principals, officers, managers, affiliates and related parties on the other hand."

The main individual behind Fontainebleau Las Vegas is Miami developer Jeffrey Soffer, who also controls Turnberry West Construction, which has filed a $675 million claim against the project including $63.9 million for its own fee. Turnberry West also built the four-tower Turnberry condominiums next to the Fontainebleau site.

"Given that the debtors' shareholders lack any economic stake in the debtors, efforts by Mr. Soffer to formulate a transaction under which he will receive some consideration or benefit will, unless he is forced to negotiate at arm's length with an independent trustee, divert value that belongs to the estate from creditors," states the term lenders' motion.

The members of the Term Lenders Steering Group include Brigade Capital Management LLC, Canyon Capital Advisors LLC, the Carlyle Group, Guggenheim Investment Management LLC and Highland Capital Management LP. The group's motion followed the denial of the developer's motion in a related lawsuit to force other lenders for the project to hand over $656 million in promised late-stage financing they refused to provide, stalling the project and leading to the Ch. 11 filing earlier this year.

A couple of weeks ago, analyst Bill Lerner of Union Gaming Group estimated that any buyer would need $2 billion to buy out the existing project debt [at a steep discount] and finish construction. The existing project debt is approximately $1.5 billion and the estimated cost to complete the project is also $1.5 billion, according to multiple reports.

Along with the 3,800 hotel rooms in the 737-foot-tall tower, Fontainebleau Las Vegas is slated to include a 100,000-square-foot casino; 27 restaurants, nightclubs and bars; 300,000 square feet of retail space; a 3,200-seat performing arts center; 60,000-square-foot spa; and 390,000 square feet of conference area and meeting rooms.