UPDATE: Judge Denies Bid For Shareholder Committee In Innkeepers Case
30 September 2010 - 11:25PM
Dow Jones News
A bankruptcy judge on Thursday denied a request by an ad hoc
group of Innkeepers USA Trust (KPA) preferred shareholders for an
official shareholder committee in the real estate investment
trust's Chapter 11 case.
Judge Shelley C. Chapman of the U.S. Bankruptcy Court in
Manhattan said evidence and testimony presented by the shareholders
raised questions but "is insufficient to satisfy the shareholders
burden," needed to form an official committee.
The shareholders argued that some Innkeepers hotels secured by
mortgages are worth more than their debt. Martin J. Bienenstock of
Dewey & LeBouef LLP, a lawyer for the ad hoc committee, also
talked about $7.4 million in an Innkeepers-controlled bank account
that could be available to creditors. Innkeepers said the money has
been put aside so the court could decide what happens with it.
Chapman sided with Innkeepers, whose lawyer, Anup Sathy of
Kirkland & Ellis, said the committee didn't prove there was
"substantial likelihood" of a "meaningful recovery." Innkeepers
says it doesn't yet know whether shareholders will recover anything
in the restructuring.
The preferred shareholders group, consisting of hedge fund
managers Brencourt Advisors, Esopus Creek Advisors and Plainfield
Asset Management, called a witness who gave an "implied" valuation
of several Innkeepers-owned hotels at $47.5 million, in an attempt
to prove to the court that some of Innkeepers' hotels may be
solvent and that, as a result, shareholders could be entitled to
some recovery.
The witness, Anders J. Maxwell, managing director at Peter J.
Solomon Co., said he had some real estate background but had never
before this case been asked to value hotels in a restructuring.
In his closing argument, Sathy called the implied valuation
"speculative at best."
Chapman agreed, saying "I find it difficult to ascribe great
weight to Mr. Maxwell's testimony," citing among other factors the
fact that Maxwell only visited two of the six properties he was
asked to value. The judge added that the shareholders have also
demonstrated that they have access to adequate representation,
another burden that must be met by parties seeking an official
committee.
Later Thursday, Chapman denied the shareholder group's motion
for an examiner in the case, who have investigated the "antics"
surrounding a now-nixed plan that would have put Innkeepers in the
hands of Lehman Brothers Holdings Inc. (LEHMQ) and Apollo
Investment Corp. (AINV).
Under the plan, which Chapman has said wasn't "even handed,"
Lehman and current owner Apollo would've bought the company with
Lehman immediately selling its half to Apollo. The preferred
shareholders wanted the examiner to look into whether Innkeepers
tried to sell its properties to other owners, and whether company
officers and directors didn't carry out their fiduciary duties with
certain "acts and omissions."
Among other reasons they wanted an examiner is to look into
whether Apollo's 2007 leveraged buyout of Innkeepers could be
unwound due to "fraudulent conveyance." Innkeepers, based in Palm
Beach, Fla., filed for Chapter 11 protection in July to restructure
more than $1 billion in debt, much of which stemmed from the Apollo
buyout.
Said Chapman, "I find there is no basis to appoint an examiner."
She added that if future evidence is uncovered, the committee
"could take another run at it."
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-By Joseph Checkler, Dow Jones Daily Bankruptcy Review;
212-416-2152; joseph.checkler@dowjones.com
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