The reason for Fontainebleau's lawsuit is that 10 lender banks unexpectedly canceled the casino's $800 million revolving credit facility, without which the casino has no hope of completing its $3 billion Las Vegas casino/hotel project. According to the lawsuit, presented below, the banks canceled the loan, claiming the project had defaulted on unspecified loan requirements, to which the casino has retorted that it is not in default and is accusing the banks, most notably Deutsche Bank, from whom it also is seeking damages, of trying to back out from contractual commitments even after receiving a plethora of bailout funds from taxpayers.
Fontainebleau goes one step further and actually accuses DB of "trying to minimize competition with the Cosmopolitan project. To that end, Deutsche Bank has sought to persuade other Revolver Banks to breach their commitments."
This is quite riveting stuff, as until this development, it was widely accepted that just the Rattner doctrine was allowed to renege on contracts. Now, banks it seems are starting to follow suit, especially when they have embedded conflicts of interest.
As both the Fontainebleau and DB's Cosmopolitan developments are in their final stages of development, their "successful" opening would result in yet another flood of hotel rooms in the already oversupplied Las Vegas market. The Fontainebleau casino would provide 3,800 brand new rooms and condo units, while the Cosmopolitan would supply yet another 3,000 rooms and condos.
Even more peculiar is the naming of some of the other banks, which in addition to DB, include Bank of America, RBS and Sumitomo Mitsui. Curiously, these are all banks that are also lenders on the MGM CityCenter program being developed between MGM Mirage and Dubai World. As DB is already likely elbow deep in the CityCenter fiasco, which brought MGM Mirage to the verge of bankruptcy a few weeks ago, it is not that complicated to see how the German bank would stand to profit by minimizing potential LV Strip competition.
DB has been aggressively ramping out its Commercial real estate portfolio in recent years. As Bloomberg notes:
As the Germans get even more entrenched in underperforming markets with significant real estate exposure, the likelihood that the bank (and other comparable lenders) will start to amend their loan exposure to competing properties arising from conflicts of interest will only get higher as the true scale of the CRE problem becomes apparent. And after all, what are contracts really worth any more, now that the President himself has provided his two cents on the matter. One can only imagine how much more hilarious the Las Vegas situation could be if the UAW was involved in any extensive manner.
Deutsche Bank had 14.7 billion euros, currently valued at $22.6 billion, of commercial real estate loans at the end of June, company reports show. That amount was 10.7 billion euros after taking into account risk reduction measures including hedges, the bank said. It wrote down the investments by 543 million euros in the second quarter, or 309 million euros when hedges are included.
Earlier this year, Deutsche Bank took control of seven New York office towers after developer Harry Macklowe defaulted on about $7 billion in loans that the bank helped arrange to enable him to buy the buildings from Blackstone last year. Deutsche Bank, whose shares fell 30 percent in the year through yesterday, is selling those properties.
The full amended court filing is presented below (link here).
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