Innkeepers Balks At Preferred Shareholders Bid For Committee

   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; [e-mail]