MSR Hotels case conversion, DIP loan denied; bid procedures approved

By Caroline Salls

Pittsburgh, Oct. 21 - Motions for conversion of MSR Hotels & Resorts, Inc.'s Chapter 11 case to Chapter 7 and for the company to obtain debtor-in-possession financing were denied Monday by the U.S. Bankruptcy Court for the Southern District of New York, while MSR received court approval for the bid procedures for the proposed sale of its resort marks, according to court filings.

In July, MSR Hotels creditor Five Mile Capital Partners LLC asked the court to convert the case or appoint a Chapter 11 trustee to oversee it.

Unlike the debtors in the previous bankruptcy case filed by MSR Hotels subsidiary MSR Resort Golf Course LLC, Five Mile said MSR Hotels conducted no business on its bankruptcy filing date or seemingly for years before that.

Five Mile said MSR Hotels' directors and proposed advisers testified in the subsidiary's case that the parent "was an asset-less shell."

In addition, Five Mile said MSR Hotels' case "is infected with an additional disorder: management that has proven to be incompetent and deeply conflicted."

Five Mile said the company not only failed to obtain compensation for the use of its valuable brands by the owner of its resorts, but it has not moved forward with any opportunities to gain additional revenue by licensing them to other entities for other uses.

Under the approved bid procedures, bids are due by 4 p.m. ET on Jan. 28, and the auction will be held on Jan. 30. Bids at auction must be made in minimum increments of $50,000.

The company said it would identify any stalking horse bid by Jan. 16.

As previously reported, MSR requested court approval to obtain $2 million of DIP financing from CNL DIP Recovery Acquisition LLC.

The company said in the motion filed in June that the financing would allow it to satisfy some post-bankruptcy administrative expenses.

According to Monday's order, the DIP financing motion can be re-filed if concerns raised by the court are remedied.

MSR Hotels, a New York-based real estate investment trust, filed for bankruptcy on May 8. Its Chapter 11 case number is 13-11512.

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