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LAS VEGAS-Penn National is indeed one of the parties negotiating to acquire the Fontainebleau resort here out of bankruptcy, according to multiple news reports Friday. Anchored by a 63-story hotel tower, the stalled 3.4-million-square-foot project with 3,800 hotel rooms sits 70% complete on 24 acres at the north end of the Las Vegas Strip.

Penn National owns several casinos and racetracks across the country and has said publicly it is looking to enter the Vegas market. The company is “one of at least two” buyers vying for the asset, Reuters reported, citing “a source familiar with the matter.” The Wall Street Journal, citing “a person with knowledge of the situation,” put the number at three. Penn National spokesman Joe Jaffoni reportedly told the latter he could neither confirm nor deny the information.

Scott Baena, lead bankruptcy lawyer for Fontainebleau Las Vegas, which is controlled by Miami developer Jeffrey Soffer, told the federal bankruptcy court in Miami last week the developer has received a “preliminary draft term sheet” from a potential buyer that he this week identified only as a casino operator. “They’re real; they’ve got cash,” the Miami Herald quotes Baena as saying during hearing this week. Apollo Management, one of the companies that control Harrah’s Entertainment, is also interested, according to the Las Vegas Sun and other publications.

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.

If the resort is completed in 2010 it would add to, and have to compete in, a market already flooded with thousands of new hotel rooms and taking on several thousand over the next couple of years. Moreover, it would have to do so at a time of fewer tourists and lower gambling levels.

Recent released data on monthly visitation show the year-over-year decline on the Strip is shrinking, but not due to more tourists and conventioneers. Rather, it was due to a steep drop off in visitation that began in the second half of 2008, creating a lower hurdle for YoY comparisons in second half of 2009. Strip gaming win–the amount gamblers lose in Strip casinos—is running 11% behind 2008 and 24% behind 2007, according to the state Gaming Control Board.

Fontainebleau filed for bankruptcy and shutdown construction in the spring, after the final-stage revolver lenders declined to fund $656 million earmarked for completing and opening the resort. The parties are in mandatory mediation related to a lawsuit filed by Fontainebleau against the final-stage lenders that is running concurrent with the bankruptcy court proceedings.

In Miami bankruptcy court this week, over lenders objections, Judge Jay Cristol extended the developer’s access to a couple of million dollars in lenders’ money to continue paying its bills while it negotiates a sale or reorganization. “I think we can go three weeks [more], but not much longer,” the Miami Herald quotes him as saying. “I’m very fearful the wheels are coming off.”

Besides Fontainebleau, Vegas operators Station Casinos and Herbst Gaming are in Ch. 11 bankruptcy and Consolidated Resorts is in Ch. 7 bankruptcy. In addition, debt tied to Black Gaming and the Riviera, Hooters and Planet Hollywood resorts are all in default.

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