Last week, the Eleventh Circuit Court of Appeals held that lenders in syndicated credit facilities do not have standing to enforce the funding commitment that other lenders owe to the borrower in the absence of specific contractual provisions. In a case that emerged from the failed Fontainebleau resort and casino project in Las Vegas, the Eleventh Circuit affirmed decisions denying summary judgment to Fontainebleau and dismissing claims brought by a group of term lenders against revolving lenders for lack of standing under Article III of the United States Constitution.

Fontainebleau was the borrower under a June 2007 Credit Agreement, which provided three separate facilities: an initial term loan, a delay draw term loan and a revolving credit facility. Under the terms of the Credit Agreement, the revolving lenders were not obligated to advance funds in excess of $150 million unless the entire amount of the delay draw term loan had been “fully drawn.” On March 2, 2009, Fontainebleau submitted a borrowing notice to the administrative agent, requesting over $1 billion simultaneously from the delay draw term loan and the revolver. The administrative agent, citing the provision in the Credit Agreement that full funding under the revolver was not available until after the delay draw term loan had been “fully drawn,” rejected Fontainebleau’s borrowing notice. On March 9, 2009, Fontainebleau issued another borrowing notice, requesting only funds from the delay draw term loan, which the term lenders funded.