Hotel owners 205 East 45, EALC make pre-packaged bankruptcy filings

By Caroline Salls

Pittsburgh, May 23 - 205 East 45 LLC and EALC LLC made a pre-packaged Chapter 11 bankruptcy filing Monday in the U.S. Bankruptcy Court for the Southern District of New York.

205 East 45 owns the Alex Hotel, and EALC owns the Flatotel Hotel. Both properties are located in New York.

The companies said in court documents that they stopped making interest payments on secured loans, failed to repay the secured loans at maturity and stopped paying real estate taxes beginning in January 2009 as a result of operating losses from decreased room revenue, significant liquidity constraints, considerable debt burden and unprecedented adverse changes in the economy and hospitality industry.

205 East 45 and EALC said all of these missed payments led to various foreclosure and guaranty lawsuits filed in New York state court.

A cash management receiver was appointed in January 2011 for both of the debtors' properties. That role was expanded to that of a full receiver in April 2011.

Lawsuit settlement

The companies said the foreclosure and guaranty lawsuits were settled in February under an agreement that calls for the pre-packaged bankruptcy filing.

If the plan is not confirmed, the settlement allows the secured lenders to foreclose on the properties.

205 East 45 and EALC said no claimants besides the secured lenders would realize any recovery if the plan is not confirmed.

In consideration for the settlement of the state court actions, the secured lenders will receive a new note in a principal amount to be determined and 100% of the new membership interests in the reorganized companies.

Also under the settlement, the Alex Hotel owner issued an exclusive option to purchase preferred membership interests with a $30 million liquidation preference.

The Alex Hotel option is exercisable by the secured lenders at any time before the plan effective date upon written notice and payment of $1,000.

Meanwhile, the Flatotel owner issued an exclusive option to purchase preferred membership interests with a $30 million liquidating preference. That option is exercisable under the same conditions as the Alex Hotel option.

In addition, in consideration for agreeing to settle a tortious interference action, Mark Hotel plaintiffs will receive a $2.5 million cash payment under specified circumstances.

Creditor treatment

Treatment of creditors will include:

• Holders of other priority claims will be paid in full in cash to the extent due, or the claims will be reinstated;

• Holders of other secured claims will either receive cash, have their claims reinstated or receive the collateral securing the claims;

• Holders of secured lender claims will receive the new note and 100% of the membership interests;

• Holders of general unsecured claims will receive the lesser of their share of a general unsecured claims distribution or cash equal to 20% of their claims;

• Holders of insider unsecured claims will receive no distribution; and

• Preferred membership interests and common membership interests will be cancelled and extinguished, and holders will receive no distribution.

In connection with the bankruptcy filing, the companies are seeking court approval to use the cash collateral of their pre-bankruptcy secured lenders to fund their operations while in bankruptcy.

Debt details

According to court documents, 205 East 45 and EALC each have $50 million to $100 million in assets and $100 million to $500 million in debt.

Simon Elias and Izhak Senbaher each own 44.5% of the membership interests of 205 East 45. 132 West 52nd Holdings, Inc. owns 100% of the class A membership interests in EALC, and Elias and Senbahar each own 45% of the class B membership interests in EALC.

Steven A. Carlson has been appointed as the debtors' chief restructuring officer to see all aspects of their businesses and operations during the bankruptcy cases.

The debtors are represented by Klestadt & Winters, LLP.

205 East 45 and EALC are New York hotel operators. The Chapter 11 case number is 12-12208.

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