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LAS VEGAS-The final-stage lenders for the stalled Fontainebleau Las Vegas resort here refused to fund their commitment for the project because their interest in the money would instantly fall below 100%, attorneys for the developer alleged this week in Miami bankruptcy court. The developers sued Bank of America and other final-stage lenders in April, one month after the lenders alleged default and declined to hand over the previously committed financing, stalling completion of the 63-story, 3,800-room resort.

Two months later, with no resolution in sight, the developers filed for protection from creditors under Ch. 11 of the US Bankruptcy Code and filed a motion for an expedited, partial summary judgment in its lawsuit that would force the lenders to immediately $656 million in previously committed financing. The developers’ argument is that the money should be turned over because the language in the loan agreement requires the final-stage lenders to fund its commitment regardless of any default, which the developers claim never occurred. The judge presiding over both the lawsuit and the bankruptcy in June directed the parties to try mediation, which is set for this Thursday and Friday in New York.

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. Bank of America, in addition to being one of the revolving (final-stage) lenders, is also the administrative agent for the credit agreement.

In explaining their newest allegation, Fontainebleau attorneys state in court filings this week that both the term lenders (who fund first) and the revolver banks (the final-stage lenders who fund after the term lenders) share a pro rata security interest in the account where all funds were to have been deposited. “Thus, instead of having a 100% interest in their (financing) commitment, the Revolver Banks would have been diluted by the term lenders’ interests. It is thus unsurprising that the term lenders are (also suing) the Revolver Banks,” Fontainebleau attorneys state in the filing.

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. Fontainebleau says it was informed on April 20 that the revolver lenders, citing an unspecified default, had terminated their financing agreement and would not be funding the final $656 million of the revolver.

The termination came three days after 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.

Fontainebleau says none of that matters because the “plain language” of the agreement requires the revolver lenders to hand over the money regardless of a default, which it does not agree occurred. The banks claim otherwise.

“Even if Fontainebleau’s tortured reading of the credit agreement were correct (which it is not), the motion (for summary judgment) should still be denied because there are compelling reasons to believe that, long before it issued the March notice of borrowing that is the subject of this motion, Fontainebleau had materially and repeatedly breached the credit agreement that it now asks this court to `enforce’ against the lenders,” the banks’ attorneys state in a filing last week.

Fontainebleau, which denies breaching the credit agreement at any time, says it sought the full funding before it was actually necessary because they had a feeling the revolver lenders, which included banks that were failing or in danger of failing, were looking for a way out.

“With close to $2 billion in equity, retail financing, second-lien financing and term-loan financing already committed, Fontainebleau was concerned that its last set of lenders — the revolver banks — would attempt to evade their commitments and pull the plug or simply go out of business,” Fontainebleau attorneys state in a court filing. “Fontainebleau was prepared to incur the extra interest expense by drawing the maximum possible revolver loan in order to protect itself against the risk that the banks would breach. In retrospect, not only is Fontainebleau’s reasoning obvious — it was prescient.”

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.

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 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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