Fontainebleau Las Vegas term lenders receive substantial cash distribution under bankruptcy settlement
Clients Fontainebleau Term Lenders
Jones Day represented funds managed by Brigade, Canyon, Caspian, ING, Morgan Stanley, Solus, Silver Point, MJX, Monarch, and Venor in obtaining a settlement of their claims to the cash proceeds of an asset sale in the bankruptcy case of Fontainebleau Las Vegas, a failed casino and hotel project.
Our clients own about 85 percent of the loans issued in 2007 under a $1.8 billion credit facility for a development project that was never completed. Following the bankruptcy filing in 2009, the assets were sold to Carl Icahn in a sale that generated only about $100 million in cash proceeds. Making matters worse, contractors with Nevada law mechanic's liens challenged the priority of the lenders' lien in that cash. The proceedings were later expanded to include litigation brought by the lenders in New York state court to recover on a $100 million completion guaranty that could be used by the lenders to pay contractors (but not to pay the lenders), an appeal to the Eleventh Circuit regarding an $18 million disgorgement claim asserted by the contractors against the lenders, and a dispute with title companies over coverage.
Given the multitude of parties and proceedings, the settlement required four mediations and months of documentation to complete. The bankruptcy court approved the settlement in November, and the settlement closed on December 18, 2013, under which Jones Day's clients and other lenders received $89 million, plus a release from the disgorgement claims. Combined with an earlier partial settlement that Jones Day obtained for the lenders in August 2012 that resulted in an interim distribution of more than $6 million of the sale proceeds, the lenders ultimately recovered more than $95 million of the $100 million in sale proceeds, of which more than $80 million was distributed to our clients.