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LAS VEGAS-A Florida bankruptcy judge on Wednesday granted Fontainebleau Las Vegas’ its request for an expedited hearing on its motion for partial summary judgment against the lenders holding back $656 million in final-stage financing for the plus-$3-billion project, a source with Fontainebleau tells GlobeSt.com. Judge Jay Cristol reportedly asked the banks’ lawyers to have their argument in by July 1 and for Fontainebleau to respond by July 7, saying a hearing would be held shortly thereafter.

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 and first mortgage lenders having already invested more than $2 billion of debt and equity. Fontainebleau says it was forced to file Ch. 11 bankruptcy in early June after final-stage lenders, citing an unspecific breach of loan covenants, withheld $675 million in revolver financing in March. Fontainebleau claims in the lawsuit that they have not breached any loan covenants.

The partial motion for summary judgment requests that the bankruptcy judge order the banks to immediately fund the $656 million they refused to fund on March 2, 2009. On Tuesday, June 16, the banks filed opposition to the motion for an expedited hearing, arguing that, among other things, Fontainebleau’s multiple delays in its litigation show that there is no emergency warranting expedited treatment, that the bankruptcy court lacks the authority to adjudicate the dispute, and that Fontainebleau’s breach of contract claim requires extensive discovery.

Fontainebleau countered in a response also filed Tuesday that any delay was entirely the fault of the banks, that the bankruptcy court indeed has the authority to adjudicate the dispute, and that its claim that discovery may be required–”despite [the banks'] having had extensive access for the life of the loan to the construction site and Fontainebleau’s books and records”–is “hardly a reason to deny expedited consideration of a motion that is otherwise extremely time sensitive.”

Accompanying the banks’ argument against the need for an expedited hearing was an explanation of why they withheld the $656 million in the first place, and what they allege has occurred between then and now. Fontainebleau declined to provide GlobeSt.com a response to the following explanation of events at this time, saying it would do so in court filings at the appropriate time.

Fontainebleau’s $1.85 billion in construction financing for the project was through three senior secured credit facilities: a $700 million seven-year maturity term loan, a $350 million six-year maturity delay draw term loan and an $800 million revolving loan. The agreement called for the loans to be doled out consecutively, not concurrently, the banks claim, and that all requests should explain the need.

The banks allege that Fontainebleau’s March 2 funding request was for both the entire $350 million facility and $670 million of the revolving loan, and included no explanation. The following day, Bank of America, administrative agent for the credit agreement, declined to process the request, arguing that the delay draw term loan had to be fully drawn down before the revolving loan could be funded.

“While Fontainebleau disputed the Lender’s interpretation of the Credit Agreement, it later submitted an amended Notice of Borrowing seeking only the $350 million Delay Draw Loan—that request was approved,” according to the banks’ court filing.

On March 11, 2009, the banks allege that Fontainebleau submitted a $137.9-million March Advance Request for funds, including the required statement that available funds exceeded remaining costs. That request also was funded, on March 25, according to the banks, after Fontainebleau revised its figure for how much available funds exceeded the remaining costs from $88.8 million to $14 million, citing increases in the cost of construction and debt coverage.

Less than one month later, the banks allege, on April 13, Fontainebleau notified the banks that it no longer believed available funds exceeded remaining costs. The next day, again without explanation, according to the banks, Fontainebleau produced a worksheet reflecting $186.9 million in additional costs not accounted for in the March Advance Request.

The two sides met again on April 17, according to the banks, at which time the banks allege that Fontainebleau acknowledged facing a substantial construction deficit. Fontainebleau reportedly said it would not be able to complete the project using the funds currently available, and that it would likely seek bankruptcy protection to restructure its financial obligations, according to the banks court filing.

Three days later, on April 20, Fontainebleau says it was notified by the banks that they had “terminated” their financing agreement, prompting Fontainebleau’s $3-billion lawsuit and, ultimately, its bankruptcy filing.

In their explanation of events, the banks allege that the developer knew the project was well over budget prior to its March request for funds. The banks site litigation against Fontainebleau filed on May 12, 2009, by CCCS International, a construction management firm. According to the banks, CCCS alleges in its complaint that when it was hired in the summer of 2008 to review expenses, Fontainebleau projected that it had made $130 million in prior overpayments on the project. The banks also allege that Fontainebleau itself admits it has been seeking additional financing to complete the project since last fall, when Lehman Brothers Holding Inc., which was the largest participant in the project’s mortgage loan, filed for bankruptcy protection.

Earlier this week , the Las Vegas Business Press reported that the Washington, DC-based Union Labor Life Insurance Co., already a partner in the Fontainebleau Las Vegas project, could be a potential source of additional funds to complete the resort now that the project is in bankruptcy. Last week , the bankruptcy court approved several of Fontainebleau’s first-day motions, including payment of back wages, and, over the objection of final-stage lenders, provided partial access to $201 million in cash collateral for “the ordinary course of business.”

In addition to BofA, the revolver lenders named in the lawsuit are JPMorgan Chase, Merrill Lynch Capital Corp., Barclays Bank PLC, Deutsche Bank Trust Company Americas, Royal Bank of Scotland PLC, Sumitomo Mitsui Banking Corporation New York, Bank of Scotland, HSH Nordbank AG, Camulos Master Fund LP and MB Financial Bank NA. The list does not include one revolver lender with a $10 million commitment that is in FDIC receivership and is therefore not part of the suit.

Shortly after filing its lawsuit against the revolver banks in late April Fontainebleau filed an amended complaint with more detail, claiming Deutsche Bank “sought to persuade other revolver banks to breach their commitments and has worked aggressively to discourage” a solution in order to minimize competition with Cosmopolitan, another resort project under construction on the Strip that Deutsche Bank took control of last year after the developer defaulted.

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 bankruptcy filings of the three entities will be processed jointly and their lawsuit against the final-stage lenders all will be heard by Judge Cristol, according to court documents. The filing, made in the US Bankruptcy Court for the Southern District of Florida, lists between 1,000 and 5,000 creditors, and assets and liabilities each in excess of $1 billion.

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

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