A joint venture between Cerberus Capital Management LP and Chatham Lodging Trust scuttled a $1.125 billion agreement to acquire 64 hotels out of bankruptcy, the two companies announced Monday, Aug. 22. They cited an unspecified material adverse change clause, commonly known as a MAC.

The termination submarines the Chapter 11 reorganization of Innkeepers USA Trust, which had originally been scheduled to emerge from bankruptcy late last month. Judge Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan confirmed the reorganization plan of the hotels' owner, based on the asset sale, on June 23.

In their joint announcement, the New York private equity firm and Chatham, a hospitality REIT, said the termination doesn't affect Chatham's separate purchase of five Innkeepers hotels for $195 million. That sale closed July 14.

Two of Innkeepers' 71 properties already have reverted to lenders under the reorganization.

Chatham was the minority partner in the Innkeepers joint venture, holding 9.2%, with Cerberus holding the rest.

The two offered no further details on their decision. Neither Cerberus nor Chatham returned phone calls asking for clarification. Moelis & Co., the investment bankers for Innkeepers, didn't return a call for comment.

Citing a MAC in bankruptcy, and one so late in the process, is rare. The last high-profile case came in 2008, when the parties funding the $2 billion exit financing of chemicals and engineering company Solutia Inc. backed out, citing weakening credit markets. Solutia sued. The lenders and debtor settled and the funding eventually went through.

The joint venture in the Innkeepers acquisition had said it would pay $400.53 million in cash, with the rest of the purchase price consisting of assumed debt.

Apollo Investment Corp. bought Innkeepers at the height of the market in June 2007 for $1.5 billion from management led by current Chatham chairman, president and CEO Jeffrey Fisher. After Apollo took over, it invested about $250 million in improvements.

In bankruptcy, Innkeepers spent an additional $75 million of its debtor-in-possession financing on renovations to 50 of the properties, 26 of which were in default to franchisor Marriott International Inc.

Palm Beach, Fla.-based Innkeepers filed for Chapter 11 on July 19, 2010, blaming its problems on debt that had become unmanageable in the wake of the economic downturn. The filing came after Marriott declared a default on the debtor's hotels franchised by Marriott.

Innkeepers owned upscale and midpriced hotels containing roughly 10,000 rooms in 20 states.