By Patrick Fitzgerald
Of DOW JONES DAILY BANKRUPTCY REVIEW
Innkeepers USA Trust (KPA) says its preferred shareholders are
"highly unlikely" to see a meaningful recovery from the
restructuring of its hotel operations and thus aren't entitled to
have their own committee represent their interests in the company's
Chapter 11 case.
In court papers filed Friday, Innkeepers said a group of
preferred shareholders' bid for an official committee was
unwarranted despite their claim that some of the real estate
investment trust's hotels are solvent.
The preferred shareholders' group comprises a trio of hedge
funds: Brencourt Advisors, Esopus Creek Advisors and Plainfield
Asset Management. The shareholders believe they're entitled to a
recovery because a handful of Innkeepers' hotels with individual
mortgages are worth more than their debts.
But that argument is "based on oversimplified analysis of the
financial performance of the hotel properties" at issue,
Innkeepers' lawyers said in papers filed in U.S. Bankruptcy Court
in Manhattan.
Innkeepers says the properties owe $230 million in secured debt,
which much be paid off before any residual equity would flow up
Innkeeper's corporate structure.
While Innkeepers acknowledges the possibility that the seven
properties may not be hopelessly insolvent, the shareholders'
analysis doesn't account for the improvement obligations and
long-term debt and other hurdles facing the hotels.
In its bankruptcy filings, Innkeepers pegged the book value of
its assets at $1.5 billion compared with debts of $1.52
billion.
"Moreover, there is no question that the market value of the
debtors' hotel properties has declined at a far greater rate than
the accumulated depreciation deducted from the debtors' stated book
values of their hotel properties," Innkeepers said.
In other words, Innkeepers says, with the market value of its
properties even less than their book value there is little chance
that shareholders will see a "significant recovery," the legal
threshold for committee representation, under the Bankruptcy Code's
repayment priority scheme.
The preferred shareholders want an official committee because,
they say, Innkeepers' support of an earlier deal would have wiped
out their interests while giving favorable treatment to Apollo
Investment Corp. (AINV), the holder of all of the company's common
stock.
That plan has been scrapped, but the shareholders say the only
way to even the playing field is for the bankruptcy court to
appoint a preferred shareholders' committee. Such a committee would
have its legal bills paid for by the company.
The shareholders had previously asked that the U.S. trustee, the
arm of the Justice Department that oversees bankruptcy cases, to
establish a preferred shareholders' committee. That request was
denied after the company and its creditors objected.
Innkeepers along with some of its lenders say the appointment of
a shareholders' committee will simply add additional costs to be
paid by the bankruptcy estate.
A hearing on the shareholders' bid for a committee is scheduled
for Thursday.
Innkeepers, a real estate investment trust based in Palm Beach,
Fla., holds interests in more than 70 hotels, the majority of which
operate under Marriott International Inc. (MAR) brand names. The
company filed for Chapter 11 protection in July to address more
than $1 billion in debts, many of which stem from Apollo's 2007
buyout of the hotel chain.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection)
-By Patrick Fitzgerald; Dow Jones Daily Bankruptcy Review;
202-862-3544; patrick.fitzgerald@dowjones.com