Bloomberg News

Innkeepers Plan Draws Objections From Midland, Lehman Ali

June 17, 2011

(Updates with Midland and Lehman Ali objections in second paragraph.)

June 17 (Bloomberg) -- Innkeepers USA Trust’s plan to exit bankruptcy drew objections from secured creditors and a preferred shareholder seeking to block confirmation at a hearing scheduled for next week.

Midland Loan Services Inc., the servicer for $825 million of fixed-rate mortgages, and Lehman Ali Inc., the holder of $238 million in floating-rate mortgages, said in court filings today that $3.5 million earmarked for an ad hoc committee of preferred shareholders is improper. Both said a plan for one of the Innkeepers companies can’t be approved because it is likely to be rejected by the only class of voting creditors.

Innkeepers expects to seek approval of its Chapter 11 plan at a June 23 hearing in U.S. Bankruptcy Court in Manhattan. The company, based in Palm Beach, Florida, on May 13 won approval of the disclosure statement for revised terms of a plan that includes a sale of 64 hotels to Cerberus Capital Management LP and Chatham Lodging Trust.

One East Capital Advisors LP, an Innkeepers preferred shareholder, said in a court filing today that the plan improperly gives releases to Apollo Investment Corp., Innkeepers’ owner. The proposed payment of nothing to 6 percent for its preferred stock “impermissibly takes value” while barring lawsuits against Apollo, One East said.

Apollo Release

One East contends that Apollo gave nothing in return for the release and that the release isn’t required by the purchaser of Innkeepers’ property. Apollo acquired Innkeepers in July 2007 in a $1.35 billion transaction.

One East also objected to the proposal to give $3.5 million to the ad hoc group preferred shareholders when other shareholders would receive nothing. The ad hoc committee’s legal fees are $2 million, leaving the preferred shareholders on the panel with $1.5 million, One East said.

Lehman Ali, a non-bankrupt subsidiary of Lehman Brothers Holdings Inc., additionally argued that the plan can’t be used to pay a $500,000 bonus to Innkeepers’ chief executive officer. Midland, a division of PNC Bank, said the plan would improperly cut off its claim on a guarantee, allowing several million dollars to go to Apollo.

Innkeepers has 72 extended-stay and limited-service properties with 10,000 rooms in 20 states. The Chapter 11 petition filed in July listed 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).

--With assistance from Thom Weidlich in New York. Editors: Stephen Farr, Glenn Holdcraft

To contact the reporter on this story: Bill Rochelle in New York at wrochelle@bloomberg.net.

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


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