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Rating Action:

Moody's assigns B2 CFR to Fontainebleau Las Vegas Holdings, LLC; ratings outlook stable.

03 Apr 2007
Moody's assigns B2 CFR to Fontainebleau Las Vegas Holdings, LLC; ratings outlook stable.

Approximately $1.8 billion of debt affected.

New York, April 03, 2007 -- Moody's Investors Service assigned the following ratings to Fontainebleau Las Vegas Holdings, LLC (FLVH) and its direct wholly owned subsidiary, Fontainebleau Las Vegas, LLC (FLV):

Fontainebleau Las Vegas Holdings, LLC (FLVH)

- Corporate Family rating at B2

- Probability of Default rating at B2

- Loss Given Default rating at LGD 4, 50%

Fontainebleau Las Vegas LLC (co-issuer: Fontainebleau Las Vegas II, LLC)

- $1,000 million 5 year secured and guaranteed revolving credit facility - B1, LGD 3, 36%

- $850 million 7 year secured and guaranteed delayed draw term loan - B1, LGD 3, 36%

- Stable ratings outlook

The ratings are subject to a minimum cash contribution of $430 million from FLVH's ultimate parent, Fontainebleau Resorts, LLC (Parent), issuance of $675 million junior capital, guarantees from the Parent, FLVH, and Fontainebleau Resort Properties I, LLC (an intermediate holding company), and a completion guarantee from Turnberry Residential Limited Partner, L.P. (TR) The ratings are also subject to receipt and review of final terms and documentation.

The cash contribution, together with approximately $44 million of additional cash equity spent by the Parent as of the financing date, $850 million of secured delayed draw term loan, $675 million of second mortgage notes and drawings from the $1,000 million secured revolving credit facility will be used to construct the Fontainebleau Las Vegas resort on the north end of the Las Vegas Strip. The project budget totals $2.5 billion, including the retail component that is being financed separately. The Parent is owned by entities controlled by Jeffery Soffer, management and third party investors, (collectively, the Sponsors). Mr. Soffer is a principal in Turnberry, a large successful real estate development and property management company. In order to make the required $430 million cash equity contribution to FLVH, the Parent is raising approximately $765 million through a series of transactions including a $375 million common equity raise, a $185 million PIK preferred security and $205 million of proceeds from the retail component that is being financed by an affiliated entity. The Parent will contribute this $430 million to FLVH as equity with the remaining proceeds being used to repay existing indebtedness and fund corporate overhead and pre-development expenses during the construction period of the project.

Pursuant to Moody's Global Gaming Methodology the ratings are supported by the project's size, location in a low regulatory risk jurisdiction and successful development history of the principal sponsor that are offset by above average leverage, low interest coverage and construction risk.

The B2 CFR rating reflects significant construction and ramp-up risk, single asset and market concentration risk, reliance on the sale of condo-hotel units to reduce debt to a manageable level post construction, and a modest cash equity base equal to 20% of the project budget, excluding the cost of the retail component and prior to any condo-hotel sales. Additional risks include, shared construction costs with the retail component, growing supply of luxury resorts on the Las Vegas Strip, the parent company's simultaneous pursuit of a development in Miami, and the project's location in an evolving area of the Las Vegas strip. Assuming condo-hotel units are sold over a 35 month period ending in the third quarter of 2010 at around $1,300 per square foot and the resort achieves its first year target return level, Moody's estimates debt/EBITDA of 6.0x and 4.7x in 2010 and 2011, respectively. These levels are reflective of a B2 rating in 2010 and a low Ba3 rating in 2011 pursuant to Moody's Global Gaming Methodology. Moody's estimates EBITDA/interest of 1.8x and 2.4x in 2010 and 2011, respectively. These levels are reflective of a B3 rating in 2010 and a B2 rating in 2011 pursuant to Moody's Global Gaming Methodology.

The ratings consider the Turnberry's significant construction and development experience -- including condominium and condo-hotel projects on the Las Vegas strip, successful track record of the management team, solid liquidity, as well as the reasonability of management's projections that take into account the time necessary for a project of this scale to grow into its sustainable margin profile. Project liquidity includes; a $117 million budget contingency reserve, a $100 million completion guaranty from TR - a credit worthy affiliate of the project Sponsor - supported by a $50 million letter of credit, a funded $50 million liquidity reserve, and estimated revolver availability of about $100 million at opening. Additionally, the ratings are supported by Las Vegas' low risk regulatory designation, the city's position as a primary destination resort and its growth as one of the largest entertainment markets and most popular trade show destinations in the U.S.

The rating of the bank facilities reflects the application of Moody's Loss Given Default Methodology. Key structural protections in the documentation include a requirement that no less than 95% of hard costs be committed prior to the initial advance under the bank facilities, use of equity and second mortgage note proceeds first, a requirement that the project budget remain in-balance as advances are made, and a requirement that significant scope changes, if any, be funded from realized project savings and/or new equity. Additionally, covenants from the completion guarantor to limit distributions and maintain a certain level of net worth are expected to be in place, mandatory prepayments from the sale of condo-hotel units, a tight restricted payments provision and small baskets for additional liens, debts, and investments provide adequate protection to lenders.

The stable ratings outlook anticipates that the project will be up and running by the expected completion date, the condo-hotel units will be sold as projected, and the resort will generate a sufficient return to meet debt service requirements. The critical inflection points for the credit are project completion on time, on budget and the sale and closing of the condo-hotel units by year-end 2010 to reduce peak funded debt to a serviceable level.

Ratings could be lowered if the project runs into material construction delays, cost overruns not covered by the budget contingency, if the condo-hotel units sell more slowly or at lower price points, or the project does not ramp up as expected. Unless the project exceeds its projected returns, upward rating momentum is not likely until a year or more after opening.

Fontainebleau will feature a 3,889 room hotel of which 1,018 will be luxury condominium-hotel units, a 100,000 square foot casino, 280,000 square feet of convention and meeting space, a spa, 3,200 seat theatre, 291,000 square feet of retail space and numerous restaurants and bars. The projects is expected to completed in the third quarter of 2009. The project is located on 24.4 acres at the corner of Las Vegas and Riviera Boulevards between the Sahara and Riviera and across the street from Circus Circus.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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