Client Alert

Eleventh Circuit Holds That Term Lenders Do Not Have Standing to Enforce Funding Obligations of Revolving Lenders

March 28, 2013

By Paul Hastings Professional

On February 20, 2013, the Court of Appeals for the Eleventh Circuit Court in Fontainebleau held that term lenders did not have standing to assert claims against revolving lenders under the same credit agreement for failure to fund, absent specific contractual provisions to the contrary. In the same decision, the Eleventh Circuit also held that summary judgment in favor of the borrower on their funding-related claims against the administrative agent and revolving lenders was improper because the terms governing the revolving lenders’ funding obligation were ambiguous, thus requiring extrinsic evidence to establish the parties’ intent. While the second part the Eleventh Circuit’s decision may have received much attention, it is the denial of standing that will be of particular significance to the lending industry. Revolving lenders in particular may be relieved to hear that a decision to decline a borrower’s funding request does not expose them to the litigation risk that term lenders under the same credit agreement will come after them, unless the credit agreement specifically permits them to do so.

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