Fontainebleau Las Vegas Takes TARP-Receiving Lenders to Court Over Canceled Loan

The credit crunch continues to squeeze the life out of big construction projects across the country, but Fontainebleau Las Vegas L.L.C. doesn’t plan on becoming a victim. One month after MGM Mirage was sued by its CityCenter project partner, the developer of the in-progress Fontainebleau Las Vegas casino-resort has filed a $3 billion lawsuit against a group of lenders that recently decided to back out of $800 million in prearranged financing–despite having received over $77 billion in federal assistance, including funds through the Troubled Asset Repurchase Program. Filed in the District Court of Clark County, Nevada, the lawsuit names a large group of lenders as defendants: Bank of America, N.A., Merrill Lynch Capital Corp., JPMorgan Chase Bank, N.A., Barclays Bank PLC, Deutsche Bank Trust Company Americas, The Royal Bank of Scotland PLC, Sumitomo Mitsui Banking Corporation New York, Bank of Scotland, HSH Nordbank AG, New York Branch, Camulos Master Fund LP, and MB Financial Bank, N.A.The banks informed Fontainebleau on April 20 that commitments under an $800 million revolver loan had been terminated, citing unspecified events of default without offering specific details on the alleged default. Fontainebleau denies being in default in any way, and calls the lenders unscrupulous and their actions calculated, intentional, malicious and egregious, noting that defendants Bank of America and JP Morgan Chase have pocketed a respective $52.5 billion and $25 billion through TARP and additional forms of federal assistance. “These TARP and other funds were provided to the banks with one purpose: to ensure that these banks would begin lending again, and would continue to lend, rather than further constricting the flow of credit that is absolutely critical for any economic recovery,” the Fontainebleau notes in the lawsuit. Work on Fontainebleau Las Vegas has already exceeded the 70 percent completion mark, and loss of the financing would likely bring the massive mixed-use casino project to a halt, putting the 3,300 construction workers at the site out of work and eliminating 6,000 full-time jobs the destination would create at its 25-acre location along the Strip upon its debut. Additionally, contractors and vendors far beyond Las Vegas would be negatively impacted. “For our local economy, we need the jobs this and other casino projects generate, so it’s important from that standpoint that we don’t have construction workers on projects stop like Echelon did,” Jacob Oberman, director of gaming, research and analysis for CB Richard Ellis’ Las Vegas-based global gaming group, told CPN. Boyd Gaming announced last August that it would delay construction of the $4.8 billion Echelon project due to inhospitable capital markets and the slumping economy. “In the case of Fontainebleau, we’ll lose 3,000 jobs and gain zero,” said Oberman. Despite their own financial challenges, two other major casino-resort developments, the $8.8 billion CityCenter and the nearly $4 billion Cosmopolitan, are still scheduled to open later this year and in 2010, respectively, bringing thousands of new jobs and, local officials hope, visitors undeterred by the struggling economy. The consensus among gaming industry experts in Las Vegas is that the highly touted CityCenter project will attract visitors from around the world. “The economy will be what it is the day before CityCenter opens, but the day after it opens, we think there will be significantly more demand than there is now,” Oberman said. “There will be so much international press surrounding CityCenter; we have not had a mass-market property like that since 1998 and 1999 when the Bellagio and the Venetian opened. CityCenter is the most important of the projects that will open, but they all have incremental importance to the local economy.” While work continues to move along on CityCenter, the behemoth project has its own legal issues. In March, MGM Mirage was sued by its Dubai-based co-developer Infinity World, which cited financial concerns about the continued viability of the development and MGM Mirage as a company. However, in the face of the lawsuit and the frosty lending market, MGM Mirage has managed to cull the necessary financing to keep CityCenter construction active. In mid-April, the company secured an amendment of its credit facility, which allowed it to pay $70 million in construction costs just in time.