LAS VEGAS-US District Judge Alan Gold in Miami this week denied Fontainebleau Las Vegas LLC’s motion for a partial summary judgment and order against the final-stage lenders for the project. The motion and proposed order would have forced the final-stage lenders, led by Bank of America, to hand over $656.5 million in previously committed financing they declined to provide and ultimately canceled altogether, effectively forcing the project to file for bankruptcy protection. The denial of Fontainebleau’s motion puts the lawsuit on track for trial if ongoing mandatory mediation sessions don’t result in a settlement. Fontainebleau’s legal counsel declined comment; the lenders could not immediately be reached for comment.
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, first mortgage lenders and others have invested more than $2 billion of debt and equity in the project to date.
To grant a motion for partial summary judgment there must be no question as to the plaintiff’s argument. In this case, Fontainebleau made a request for two different pieces of the overall financing facility at the same time and that request was denied by Bank of America on grounds that the requests needed to be made consecutively, not concurrently, which is to say the one facility needed to be “fully drawn” before funds could be had from the other facility. The plaintiff argued that the term “fully drawn” meant “fully requested” not “fully funded” as the bank determined and therefore Bank of America should have handed over all the money upon its request.
Bank of America additionally argued that even if the Fontainebleau’s interpretation was correct it was under no obligation to fund the request because Fontainebleau had already defaulted with regard to the credit agreement, because the agreement required that the project costs not exceed the funds available and the costs of the project had already exceeded the funds available at the time Fontainebleau made its request.
Fontainebleau argued that its alleged default is immaterial because it wasn’t alleged to have occurred by Bank of America until after Bank of America had denied the request. Judge Gold sided with Bank of America on all fronts, saying that Fontainebleau did not “effectively rebut” Bank of America’s reasoning with regard to the term “fully drawn,” and that the bank under the credit agreement had the right to use “any and all means” to protect itself in the event of a default, alleged or otherwise, which would include retroactive relief.
“Defendants are legally correct in their interpretation of the credit agreement as a matter of law,” he wrote. “Alternatively, defendants’ interpretation of the credit agreement is reasonable, warranting further discovery and extrinsic evidence; and material issues of fact exist as to whether defendants were excused from their obligations under the credit agreement.”
Fontainebleau’s $1.85 billion in originally committed 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 claimed, and that all requests should explain the need. The first $700 million was funded fully upon execution of the funding agreement in June 2007.
After Bank of America denied Fontainebleau’s March 2 funding request for both the entire $350 million facility and $670 million of the revolver, Fontainebleau, while disputing the lenders’ interpretation of the credit agreement, quickly submitted an amended notice of borrowing seeking only the $350 million Delay Draw Loan and that request was approved, according to the banks’ court filing.
On March 11, 2009, Fontainebleau allegedly submitted a March Advance Request for $137.9-million of the $800-million revolver, 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 remaining costs from $88.8 million to $14 million, citing increases in the cost of construction and debt coverage.
Less than one month later, on April 13, Fontainebleau allegedly notified the banks that it no longer believed available funds exceeded remaining costs. The next day, again without explanation, according to the final-stage lenders, 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, at which time, according to the final-stage lenders, 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 lenders’ court filing.
Three days later, on April 20, Fontainebleau says it was notified by the final-stage lenders that they had “terminated” their financing agreement for the project, prompting Fontainebleau’s $3-billion lawsuit and, ultimately, its bankruptcy filing.
The term lenders as well as the lenders whose money Bank of America handed over to Fontainebleau subsequent to denying the March 2 funding request and before canceling the credit agreement altogether have also sued Bank of America, saying the action harmed the value of their collateral by effectively shutting down the project.
The developer behind Fontainebleau is Miami businessman Jeffrey Soffer. 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 lawsuit against the final-stage lenders was initially filed in Clark County District Court in April. It was subsequently moved to federal district court in Las Vegas and then dropped altogether by Fontainebleau in order to be re-filed in Miami bankruptcy court as part of its Ch. 11 bankruptcy case. It was back to federal district court, this time in Miami, a few weeks ago.
In addition to BofA, the final-stage lenders named in Fontainebleau’s 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.For previous stories on this case, click on one of the following links: