Bloomberg News

Innkeepers Creditors Delay Fight on $526 Million in Claims

June 07, 2011

(Updates with judge’s comment in third paragraph.)

June 7 (Bloomberg) -- Innkeepers USA Trust creditors agreed to delay a dispute over how to share $526 million in claims with Apollo Investment Corp. while the hotel owner seeks approval of a reorganization plan.

U.S. Bankruptcy Judge Shelley Chapman said she is prepared to approve the agreement among creditors and enter it in court papers later today. Creditors can vote on the plan based on the disputed claims, according to a draft of the agreement. Chapman said she didn’t want to be surprised by objections to the plan’s approval tied to the claims.

“I’m hoping you’ll work this out,” Chapman said at a hearing in U.S. Bankruptcy Court in Manhattan.

Innkeepers on May 13 won approval of the revised terms of a reorganization plan that includes a sale of 64 hotels to Cerberus Capital Management LP and Chatham Lodging Trust. The company plans to seek court approval of the plan June 23.

Innkeepers’ largest creditor, PNC Bank division Midland Loan Services, objected to the plan, saying it stripped Midland of a guarantee claim it has against Innkeepers unit Grand Prix Holdings LLC, and wrongly distributes millions of dollars to Apollo, Innkeepers’s parent.

Lehman Ali, a unit of Lehman Brothers Holdings Inc., also said Apollo, which had junior equity interest, shouldn’t get a recovery before senior creditors are paid in full.

Midland Claim

Today’s agreement delays a fight over the size of the claims creditors can make. Midland, which services an $825.4 million secured loan, had said it should be able to make its claim of almost $84 million against Grand Prix under a June 2007 agreement. More money will flow to Apollo if the claims aren’t allowed, Midland said in court papers.

Apollo said in court papers it has “reason to believe” Midland waived its right to the claim. The dispute doesn’t need to be decided until Innkeepers seeks final court approval for its Chapter 11 plan, and may affect similar claims, lawyers for Apollo said.

According to the draft agreement, the similar claims include two from Wells Fargo & Co. -- one for $44.7 million and another for $13.2 million. Lehman has a $233.5 million claim and TriMont Real Estate Advisors has two claims, for $131.3 million and $22.6 million.

Innkeepers, based in Palm Beach, Florida, has 71 extended- stay and limited-service properties with 10,000 rooms in 20 states. The company filed for Chapter 11 protection in July, listing assets of $1.5 billion against debt totaling $1.52 billion.

The case is In re Innkeepers USA Trust, 10-13800, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--Editors: Charles Carter, Stephen Farr

To contact the reporter on this story: Tiffany Kary in New York at tkary@bloomberg.net.

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net.


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