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Published Wednesday, Aug. 26, 2009 | 6:55 p.m.
Updated Wednesday, Aug. 26, 2009 | 8:48 p.m.
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Sun Coverage
Sun Archives
- Fontainebleau, banks take steps to resume construction (8-17-2009)
- Fate of Fontainebleau will likely be determined by new owner (8-17-2009)
- Fontainebleau builder agrees to six-month license suspension (8-7-2009)
- Fontainebleau suit against lenders moved from bankruptcy court (8-5-2009)
- Another lawsuit alleges unpaid work at Fontainebleau (7-14-2009)
- Fontainebleau builder says it’s protected from paying severance (7-14-2009)
- Fontainebleau fires back, outlines bank dispute (7-8-2009)
- Fontainebleau developers: Design change could help costs (7-6-2009)
The bankrupt Fontainebleau resort in Las Vegas suffered a legal defeat Wednesday when a judge ruled in favor of banks it is suing on key legal questions.
In denying Fontainebleau’s motion for partial summary judgment and an order requiring the banks to immediately provide $656 million in funding, U.S. District Judge Alan Gold in Miami sided with Bank of America and other banks being sued.
He ruled the banks, not Fontainebleau, are correct in their interpretation of a key lending contract at the heart of the lawsuit.
“Defendants are legally correct in their interpretation of the credit agreement as a matter of law,” Gold 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.”
The ruling puts the case on track for a trial, but it’s not yet clear if a trial will occur.
Given the judge’s ruling strongly backing the banks Wednesday, it’s unknown if Fontainebleau will expend the resources necessary to pursue the suit.
And a settlement is possible as the banks and Fontainebleau have engaged in court-ordered mediation of the dispute. The banks and Fontainebleau have reported to the court that unnamed investors may step in to rescue the stalled, 70-percent complete, resort on Las Vegas Boulevard.
Financing costs for the project -- not including equity investments -- have ranged up to $3.2 billion.
In his ruling, the judge reviewed the bank financing for the project that included a $700 million term loan, a $350 million delay-draw term loan and an $800 million revolving loan facility.
Besides the bank funding, the project was financed by $675 million in bonds and separate financing for its retail component.
After the $700 million term loan was funded, Fontainebleau on March 2 of this year asked the lenders to fund the $350 million delay-draw loan and $656.5 million from the revolving loan facility.
The loan agreement required funding requests to be made in a certain order and included “in-balance” tests to ensure the project was within its budget.
Bank of America, as a lender and administrative agent for the banks, refused to fund the $1 billion requested on March 2, saying the request did not conform to the requirements of the credit agreement.
The agreement says that unless the total delay-draw loan was “fully drawn,” the balance under the revolving loans could not exceed $150 million.
Fontainebleau argued “fully drawn” meant requested; the banks argued “fully drawn” meant “funded.”
Fontainebleau revised its request, and B of A did approve $337 million in funding under the delay-draw loan agreement.
A separate group of lenders called the term lenders is now suing B of A for approving that loan and later refusing to fund the rest of the project -- a refusal the term lenders say harmed the value of their collateral by shutting down the project.
After approving the term loan, B of A continued to refuse to fund the $656 million sought under the revolving-loan agreement -- a refusal Fontainebleau blamed for the shut-down of the project and its bankruptcy.
Fontainebleau on April 13 notified the banks that an event had occurred that could cause the project to fail the “in-balance” test. The revolver banks then canceled the loan agreement, saying Fontainebleau was in default of its terms.
Gold, in siding with the banks Wednesday, said the phrase “fully drawn” in the context of the contract is unambiguous and means “fully funded,” not “requested.”
The judge went on to write that even if “drawn” meant “requested,” he was “persuaded by the defendants’ arguments that they were entitled to reject the March 2 notice on the basis of the plaintiff’s default.”
Gold wrote, however, that there are issues of fact to be explored as to whether Fontainebleau was in default on March 3, the day after the initial draw request at issue.
In court papers, Bank of America and others have said Fontainebleau missed its budget and was insolvent on March 3 because of cost overruns, a lack of condominium sales and other problems.
The bank has also accused Fontainebleau of making “materially inaccurate” statements about its financial condition before March 3.
The bank has said that based on an appraisal, Fontainebleau’s value if it opened would be less than the debt against it, making it economically unfeasible for lenders to advance more funds under the current capital structure.
An appraisal submitted by the bank this summer, and taking into account the economic slowdown in Las Vegas, showed the project would be worth $1.764 billion if it opened next May. That’s far less than the $1.675 billion already loaned to the project and another $1.5 billion needed to complete it, B of A said.
Besides Bank of America, the banks being sued are B of A subsidiary Merrill Lynch Capital Corp., JP Morgan Chase Bank, Barclays Bank, Deutsche Bank, the Royal Bank of Scotland, Sumitomo Mitsui Banking Corp., Bank of Scotland, HSH Nordbank and MB Financial Bank.
Looks like it might just sit there until somebody buys it at a rock bottom price.
So somebody will step in and take over a project that has already cost $1.65 Billion, and supply another $1.5 Billion to complete it? A project that was estimated to cost $1.75 Billion total originally? You know, the government can get away with mismanagement-The Big Dig in Boston was estimated at $3.5 Billion, and ended up at $14.7 Billion. The Clark County Courthouse was a public buffoonery, too. But it's hard to figure how private money would want to get involved in this white elephant, unless all equity is wiped out. Then Wilbur Ross or Carl Icahn might step in. I thought maybe the construction unions might step in to rescue this project, but they're not that stupid. With all our coming unemployment, there's no way they would want their desperate union loafers running up the tab on the union's dime. This will be interesting...
No big loss. There are too many casinos now!
and the vegas death spiral continues
I don't mean to be mean, but this proves why the Sofers were stupid to file the bankruptcy in Miami.
Obviously, they and their lawyers have no sense that here in Las Vegas, there would have been tremendous moral pressure on the Federal judge to rule in Fontainebleau's favor, especially since 25 or so other banks are suing BofA and its fellow lenders here in Nevada. Everyone is on Fontainebleau's side in this case, economically, except the "Revolver Lenders" who are partners with BofA in the Revolving Loan which the banks refused to fund.
On my list of things which "really bug me", lawyers who give advice to clients, on where to file bankruptcy, strictly based upon keeping a case in a jurisdiction where the litigation is sure to line the lawyer's pocket.
Want good advice about where to file a Chapter 11? Ask an experienced bankruptcy lawyer who works in a city where your company absolutely could not file bankruptcy, i.e. unbiased advice.
Hey Cynical Observer,
The reason why the Sofers filed in Florida was because they are juiced in there the same way Wynn is here. The Sofers own an entire city so if anything is going to go in their favor its gonna happen there. Unfortunately for them their CEO Jeffrey is terrible, he's riding off his fathers coattails and nothing more.
Sofers rolled the dice on where to file, and lost. Should have stayed in Vegas. LOL
Ask yourself, even if this blue building is finished, why, why, why would anyone go there? There is no personality, and "maude" will say, look honey,
there is the bankrupcy hotel, lets move one.
Generic nothing. Turn it into a "blue whale museum"
Jimmi D, Detroit
The judge sided with the banks. The judge is biased because he in in Miami. The judge is not biased because he doesn't live in Las Vegas.
Any chance the judge ruled in the banks favor because the contract and the law says they are correct?
Krases is right. Some vulture will eventually take the place, as it's too close to completion to just sit there, but the last thing this town needs right now is more room inventory. Already, the lower end properties are getting over 95% of their bookings through discount websites and tour and travel wholesalers. No one can make a dime at $19 a night. No one!
Does anyone have an idea where we could house the homeless?
A judge who sides with bankers, why am I not surprised. C'mon someone take this over and finish it. I want to see what it's like when complete.
Who needs it? Tear it down and put a doggie run/park there.
Please open the Fountainbleu in time for my next bonus check!
-Donte Stallworth
Maybe David Copperfield could make it disappear.
I say, give this place to us firemen. We can then burn it down for training and then sell the land for our much deserved bonuses. Not easy to afford all our vacation cabins up in Utah..... or the fuel for all our boats and other BIG BOYS TOYS. Think of us once in a while. We work real hard for you folks.
And by the way, remember to roll your windows down and give us some cash when you see us standing in the intersections with our boots out-stretched. Even if you lost your job, you can give us a couple of your unemployment dollars.