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Cerberus, Chatham back as Innkeepers hotel buyers

by Jamie Mason | Published October 12, 2011 at 4:54 PM

Bankrupt Innkeepers USA Trust reached a settlement with affiliates of Cerberus Capital Management LP and Chatham Lodging Trust on Wednesday, Oct. 12, that will allow the sale of the company's 64 hotels to be completed to those entities for a new purchase price, according to a source close to the case.

The source wouldn't reveal the purchase price but said that it was different from the original $1.13 billion price.

The settlement was reached after talks took place over the weekend and Monday and Tuesday in and out of court, the source said.

Judge Shelley C. Chapman of the U.S. Bankruptcy Court for the Southern District of New York in Manhattan will consider the approval of the settlement on Oct. 20, the source said.

The settlement hasn't yet been filed with the Manhattan court. The source didn't know when it was going to be filed.

The settlement "entails the Cerberus-Chatham team going forward with the closing of the sale on a basis that is very favorable to the debtor and its stakeholders," the source said.

The sale would close promptly, the source added.

Cerberus, a New York private equity firm, and Chatham Lodging Trust, a Palm Beach, Fla., REIT that invests in extended-stay and select service hotels, backed out of the deal on Aug. 22, invoking an unspecified material adverse change, commonly known as a MAC.

A week later, on Aug. 29, Innkeepers sued the would-be buyers, asserting claims including breach of contract "caused by the defendants' improper termination of their binding and irrevocable commitment to purchase the ... hotels," court papers said.

Innkeepers wanted to force the buyers to complete the deal or require them "to pay substantial damages," the lawsuit said. The exact amount of damages would be determined at trial.

The trial was set to begin Monday, but was continued to Tuesday, then to Wednesday, court papers said.

In the lawsuit, Innkeepers contended that the business performance of the 64 hotels "is strong and there has been no change in either the results or prospects" of the hotels since the buyers signed their "binding and irrevocable commitment" for the purchase on May 16. The pair won a May auction for the properties.

Innkeepers also argued that, under the original sale agreement, in the event of any breach of contract, the debtor can keep the deposit as liquidated damages.

Cerberus and Chatham Lodging Trust responded separately to the lawsuit on Sept. 9, declaring that the debtor wasn't entitled to retain a $20 million deposit for the sale. They also asserted that the debtor is not entitled to the deposit because they had a "contractual right to call a 'termination event,' which they properly did," they said in court papers.

Innkeepers, which is also based in Palm Beach, 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 International Inc. declared the debtor's franchised hotels to be in default of their contracts.

Chapman on June 23 confirmed four reorganization plans for Innkeepers and its affiliates, including one based on the Cerberus-Chatham deal.

In a separate deal, Chatham Lodging Trust purchased five Innkeepers hotels for $195 million. That sale closed July 14, and the related debtors emerged from Chapter 11 a day later. Innkeepers' two other properties have reverted to lenders, with the related debtors emerging from Chapter 11 on July 7 and July 28.

New York middle-market debt investor Apollo Investment Corp. bought Innkeepers at the height of the market in June 2007 for $1.5 billion from management led by Jeffrey Fisher, now Chatham Lodging Trust's chairman, president and CEO. After Apollo took over, it invested about $250 million in improvements.

Anup Sathy, Paul Basta, James Sprayregen, Brian S. Lennon, Jennifer Marines and Patrick Bryan of Kirkland & Ellis LLP are debtor counsel. William Derrough and Zul Jamal of Moelis & Co. are Innkeepers' investment bankers. Todd B. Brents and Raymond Adams of AlixPartners LLP are the debtor's restructuring advisers.

A Schulte Roth & Zabel LLP team led by Stuart D. Freedman, Alan S. Waldenberg and Adam C. Harris and including Dominique Padilla Gallego, Kimberly M. Monroe and Fonda Duvanel represents Cerberus.

Scott Charles, Robin Panovka, David Fischman, Scott Golenbock and Caith Kushner of Wachtell, Lipton, Rosen & Katz advise Chatham.

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Cerberus, Chatham back as Innkeepers hotel buyers

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