Innkeepers, Cerberus reach tentative sale pact at lower price

NEW YORK ― Cerberus Capital Management Chatham Lodging Trust have reached a tentative agreement to buy bankrupt Innkeepers USA Trust at a lower price than in an earlier deal that fell apart, a source close to the talks said.

Cerberus and Chatham would acquire 64 of the bankrupt hotel operator’s properties for about $1 billion in a transaction that could become official as soon as Thursday, according to the person, who spoke anonymously because talks are private.

The parties are confident the deal will get done, though it is not official and could still unravel, the person said.

The agreement would avoid a trial scheduled for next week over a decision by Cerberus and Chatham to walk away from a previous agreement to buy the same 64 hotel properties for $1.12 billion.

The discounted purchase price would still be higher than the initial $971 million baseline, or “stalking horse,” bid offered by Five Mile Capital Partners and Lehman Ali Inc., a non-bankrupt unit of Lehman Brothers Holdings Inc.

Innkeepers declined to comment on Thursday. A spokesman for Cerberus also declined to comment.

The prior deal fell apart in August, when Cerberus and Chatham invoked a so-called material adverse event clause, which they contended allowed them to back out if an event occurred that could adversely affect Innkeepers’ business.

They said downgrades in the lodging sector, weakening hotel asset sales, and a 30 percent to 40 percent decline in the shares of competing hotel operators contributed to the decision.

The move sent chills through the hotel industry and contributed to fears of a double-dip recession. But in pretrial court filings, Innkeepers, which operated 72 hotels under the Hilton, Marriott and other brands, said its business was stable and its hotels had performed “at or near budget.”

It said its buyers used the clause as a pretext to negotiate a lower price.

The lawsuit brought by Innkeepers, which sought to force the buyers to close on the sale, was initially slated for trial last Monday, but the sides delayed opening arguments four times as an 11th-hour settlement progressed.

Lender tries to block payback for Innkeepers owner; claims federal rules would be violated

NEW YORK ― Innkeepers USA Trust’s biggest secured creditor is arguing that the company’s bankruptcy exit plan would violate federal rules if its owner is allowed to recover proceeds from asset sales.

Midland Loan Services, which serviced about $825 million in fixed-rate mortgage loans for the bankrupt hotel operator, said in court papers that money flowing into the estate should be paid out to creditors ahead of Innkeepers owner Apollo Investment Corp.

Otherwise, the plan would violate a rule that bars equity holders from recovery until all creditors have been paid, according to the Wednesday filing in U.S. Bankruptcy Court in Manhattan.

Midland took a roughly $100 million loss on its claims after Innkeepers’ 72 hotels were auctioned to private equity firms for more than $1 billion earlier this month.

Approval of the sale plan would result in the estate receiving about $8 million that could go to Apollo or pay back a portion of Midland’s loss.

Innkeepers’ owners have said Midland waived its claim to the money in commitment letters related to the sale, but Midland contends it waived only claims against the bankrupt entities, not their owners or guarantors.

A restructuring officer for Innkeepers declined to comment. An attorney for Midland also declined to comment. Apollo Investment was not immediately available.

Innkeepers, which owns and operates hotels under brand names including Hilton, Hyatt and Marriott, filed for bankruptcy in July 2010, saying its debt, including $1.29 billion in secured debt, made it too difficult to keep up its properties.

The dispute over the sale proceeds will be discussed at a bankruptcy court hearing on June 7. A confirmation hearing for the plan is scheduled for June 23.

Midland’s objection is the second obstacle standing in the way of confirmation. The U.S. Trustee’s office Monday took issue with a part of the sale plan that would transfer control of five Innkeepers’ hotels to Chatham Lodging Trust for $195 million. The trustee said the plan would wrongly release Apollo from claims asserted by creditors.

Innkeepers’ plan proposes a handful of sales, with most of its properties going to Chatham and Cerberus Capital Management for about $1.12 billion. The plan’s outline won court approval earlier this month, but creditors still must vote on the plan.