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ALT Hotel looks for funding nod

by Hayley Kaplan | Published February 15, 2012 at 3:49 PM

ALT Hotel LLC may be headed to a March 5 disclosure statement hearing, but first it seeks to finalize its proposed postpetition financing.

The owner of the Allerton Hotel in Chicago on Dec. 14 requested use of $800,000 in debtor-in-possession financing from senior lender DiamondRock Allerton Owner LLC, an affiliate of REIT DiamondRock Hospitality Co.

ALT asserted the DIP would cover reduced cash flow the company anticipated in the winter season, specifically Dec. 19 through March 11. Cash collateral would not be sufficient to maintain normal operations, the debtor said.

Nevertheless, the hearing on the DIP has been continued several times, most recently on Feb. 8 to Feb. 22. According to a source close to the case, the latest delay was due to continued negotiations between the parties in the case.

The source said a new DIP motion might be filed because Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago requested some of the DIP terms be clarified. The source added that the DIP would still cover only the winter season and that ALT may use less of the loan than initially requested. The source declined to specify reasons for the potential reduced usage or how ALT is operating without the funding.

Under the version of the new-money DIP filed with the court, interest would accrue over ALT's winter season at the average of the nondefault interest rates of the debtor's two prepetition loan tranches -- a $69 million piece held by DiamondRock and a one-time $10 million mezzanine loan held by Hotel Allerton Mezz LLC, now the owner of ALT. Payment of the interest would be deferred until after the winter season but would have to be made by Sept. 1.

Meanwhile, under the company's reorganization plan, filed Dec. 16, administrative claims would be paid in full in cash on the effective date.

DiamondRock, owed a disputed $66.8 million including the DIP claims, would have its debt mature five years after the effective date. The lender's claim would accrue 4.63% per annum interest, which would be paid monthly. The lender would retain all liens and security interests on the Allerton Hotel, and the foreclosure judgment the lender holds against the debtor would be dropped.

Other secured claims, if any, would be reinstated on the effective date.

General unsecured creditors would receive half of their claims on the effective date and the other half six months later. The latter portion of the claims would accrue 5% per annum interest.

For its deficiency claim, Hotel Allerton Mezz would receive monthly payments equal to excess cash until its claim had been paid in full. The mezzanine lender, which acquired control of the debtor through an $8.4 million credit bid in June 2010, would receive 7% per annum interest on its remaining claim.

The estimated amounts of the mezzanine lender's claim as well as those of general unsecured creditors were not specified in court papers.

Hotel Allerton Mezz would retain ownership of the debtor.

ALT filed for Chapter 11 on May 5, 2011, because of a pending foreclosure action by DiamondRock. Court documents cited the decline in Chicago's hotel market as one reason for the Allerton's poor financial state, and pointed to the timing of a renovation as another one. Revenue per room dropped 29% in 2008 but has improved since, ALT said.

ALT in November 2006 borrowed $79 million from Column Financial Inc. to renovate the interior of the Allerton. The process was completed in July 2008.

Some $10 million of the loan was carved into a mezzanine loan in March 2007 and transferred to Hotel Allerton Mezz in June 2007, court papers show.

Wells Fargo Bank NA, which then owned the senior loan, initiated a foreclosure suit on April 30, 2010, alleging a default had occurred on its debt. It transferred its interests in the senior loan to DiamondRock on May 24, 2010, which continued to pursue the foreclosure.

Hotel Allerton Mezz, meanwhile, in June 2010 acquired the equity in ALT previously held by ALT Hotel Mezz LLC, the borrower on the mezzanine loan.

In court papers early in the case, ALT said the mezzanine lender had alleged Wells Fargo and DiamondRock had violated an intercreditor agreement by refusing to sell the senior debt to Hotel Allerton Mezz. The mezzanine lender also alleged the senior lenders had impaired its equity interest.

Despite the dispute between the lenders, the two sides have agreed on the use of DiamondRock's cash collateral throughout the case, most recently in a sixth interim order on Dec. 21. Under the order, ALT can use its cash and revenue through March 11.

The Allerton, located on Michigan Avenue, has 443 rooms, 12,000 square feet of meeting and function space, a business center, a restaurant, a cocktail lounge and a fitness center.

ALT listed $2.55 million in assets and $69.81 million in liabilities in court papers.

Neal Wolf, Dean C. Gramlich and Jordan M. Litwin of Neal Wolf & Associates LLC are debtor counsel.

Aaron C. Smith, David W. Wirt, Michael J. Gaertner and Travis D. Rojakovick of Locke Lord LLP represent DiamondRock.

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ALT Hotel looks for funding nod

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