Innkeepers USA closes on $1.02 billion sale, emerges from bankruptcy

By Caroline Salls

Pittsburgh, Oct. 27 - Innkeepers USA Trust has completed its restructuring and emerged from Chapter 11 bankruptcy following the closure of the $1.02 billion sale of 64 of its hotels, according to a company news release.

The hotels were sold to a joint venture between Cerberus Capital Management, LP and Chatham Lodging.

Chatham Lodging had previously purchased five of the company's hotels, which served as collateral for loan trusts serviced by LNR Partners, LLC for roughly $195 million.

According to a Chatham news release, the $1.02 billion purchase price includes the assumption of $675 million of mortgage debt on 45 of the hotels with a weighted average interest rate of 6.71% and maturity in 2017.

The other 19 hotels are unencumbered, Chatham said. The purchase price per room/suite, net of cash reserves, was $118,000.

Chatham said it owns a 10.3% interest in the joint venture and funded its $37 million investment in the joint venture with borrowings under its senior secured revolving credit facility.

Chatham will provide some asset management services to the joint venture.

Chatham said all but one of the 64 acquired hotels will continue to be managed by Island Hospitality Management, a hotel management company that is 90% owned by Chatham chief executive officer and president Jeffrey H. Fisher.

Innkeepers said a substantial majority of its unsecured creditors are expected to receive a recovery of more than 90 cents on the dollar.

"Despite conventional wisdom, we have demonstrated that the myriad complex issues surrounding commercial mortgage-backed securities can be effectively resolved utilizing the Chapter 11 process," chief restructuring officer Marc A. Beilinson said in the release.

"First of all, Chapter 11 gave us the time and financial resources from our debtor-in-possession financing to renovate and revitalize the properties.

"It also allowed us to maintain good relationships with our franchisors and vendors.

"As a result, the company is emerging with higher revenues and stronger operations than when it entered Chapter 11."

Lehman transaction complete

According to a news release from Lehman Brothers Holdings Inc., Lehman ALI Inc. received a $224 million payout as a secured creditor under a transaction connected to the Innkeepers asset sale.

"This transaction delivers significant value to the Lehman estate, is a significant improvement on the original stalking horse proposal and ends any further litigation delay," Jeff Fitts, a managing director at Alvarez & Marsal who heads Lehman's real estate group, said in the Lehman release.

As previously reported, Innkeepers USA Trust and its affiliates reached an updated sale-related agreement with Cerberus and Chatham last week.

The company said on Oct. 19 that the sale price gives creditors about $75 million compared to the baseline bid established for the May 2011 auction.

Plan terms

Innkeepers said consensual modifications would be made to its existing plan of reorganization confirmed in June.

All of Innkeepers' unsecured creditors and equity holders will continue to receive the same treatment they were promised under the confirmed plan in June, with the exception of Midland Loan Services and Lehman ALI Inc., both of which have agreed to their treatment under the modified plan.

According to Innkeepers, the fixed-rate debt, serviced by Midland, will be modified to the new amount of approximately $675 million, while Lehman, the holder of the floating-rate mortgages, will receive a cash payment of about $224 million on its claims.

Treatment of other creditors under the plan confirmed in June will include:

• Holders of floating-rate pool mezzanine loan claims will receive a cash payment;

• Holders of general unsecured claims against the fixed/floating debtors will receive a share of $4.65 million, with holders of general unsecured claims against the Grand Prix West Palm Beach debtor only receiving a share of $100,000;

• Holders of intercompany claims and interests will not receive any distributions; and

• Holders of existing common and preferred equity interests in the fixed and floating debtors will receive no distribution.

Innkeepers USA is a Palm Beach, Fla., hotel real estate investment trust. It filed for bankruptcy on July 19, 2010 in the U.S. Bankruptcy Court for the Southern District of New York. The Chapter 11 case number is 10-13800.

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