Legal News

Lenders Pull Financing For Massive Resort; Borrower Says ?Huh??

By Amir Efrati

We’ve already seen a private-equity firm get hammered for breaching a $6.5 billion merger agreement to avoid making a deal amid the credit crisis. But are banks similarly backing out of billion-dollar loan agreements for real-estate projects?

An unusual legal battle on the Las Vegas Strip will help answer that question. One of the city’s most anticipated new resorts under construction, the Fontainebleau (pictured), could be doomed to failure after 11 banks canceled an $800 million revolving loan facility. The banks told the borrower it was pulling the financing because it had defaulted on the loan.

But get this: the borrower, Fontainebleau Las Vegas LLC, which owns the $3 billion luxury hotel and casino development, says there was no default.

A nasty fight looms, and even politicians are weighing in on the scuffle. The borrower filed a lawsuit last night in Nevada district court in Clark County, alleging the banks “abandoned their lending commitments solely to try to extricate themselves from a loan they no longer wish to make.” Here’s the WSJ story.

A spokesman for one of the banks, J.P. Morgan, declined to comment last night. Other banks couldn’t be reached for comment.

Thousands of construction workers are employed at the site, and an additional 6,000 hotel and casino workers were expected to be hired to staff the 4,000-room resort, projected to open in the fall.

According to the suit, the banks informed Fontainebleau on April 20 that they terminated financing based on “one or more events of default” on Fontainebleau’s part. Fontainebleau said the banks never specified the alleged defaults and that there has been no default.

The issue has already attracted the attention of Beltway bigwigs. Sen. Harry Reid of Nevada said in a statement Thursday evening: “When banks, especially ones that have received taxpayer dollars, make a commitment to finance a worthy project with thousands of existing jobs on the line, they have an obligation to keep that promise.”

Full post as published by Law Blog - WSJ.com on April 24, 2009 (boomark / email).