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ALT Hotel wins plan confirmation

by Hayley Kaplan  |  Published November 2, 2012 at 2:20 PM
The operator of the historic Allerton Hotel in Chicago is ready to emerge from bankruptcy protection after reaching a settlement with its senior lender.
 
Judge A. Benjamin Goldgar of the U.S. Bankruptcy Court for the Northern District of Illinois in Chicago signed an order Oct. 29 confirming ALT Hotel LLC's second modified reorganization plan. The plan must go effective by no later than Jan. 18, or the hotel will be sold through auction procedures outlined in the plan.
 
The debtor reached a settlement regarding the treatment of its senior lender's claim in the plan. The debtor's senior lender DiamondRock Allerton Owner LLC, an affiliate of lodging REIT DiamondRock Hospitality Co. had a disputed $71 million claim. "This settlement allows DiamondRock to receive a meaningful return on its original distressed debt investment in the Allerton Hotel," Mark W. Brugger, DiamondRock Hospitality's CEO, said in an Oct. 31 statement released by the lender. "We look forward to generating a strong cash yield from our investment in the Allerton Hotel mortgage debt."
 
ALT and DiamondRock had battled during a 5-day confirmation hearing, which began on July 23 and wrapped up on July 27. The trial was scheduled to resume on Oct. 29, but the plan was confirmed in light of the settlement.
 
Under the company's second modified reorganization plan, filed Oct. 29, all creditors will be repaid in full over time, including DiamondRock, and all outstanding litigation between ALT and the lender will be settled. Administrative and priority tax claims will be paid in full in cash on the effective date.
 
Through the settlement, DiamondRock will have an allowed $71 million secured claim. After a $5 million principal payment, which will be paid in cash on the plan's effective date, the balance of the lender's claim will be amended and restated into a new loan agreement between the parties. The new $66 million loan will accrue interest at 5.5% per annum, which will be payable monthly for a period of four years from the plan's effective date, when the loan will mature. The loan can be extended by one year if ALT pays a 1% extension fee of the principal balance of the loan. The lender will retain its liens and security interests on ALT's property.
 
All litigation, including the lender's foreclosure suit against the debtor, will either be dismissed with prejudice, or the parties will seek to dismiss all litigation between them, court documents said.
 
DiamondRock had objected to ALT's reorganization plan asserting that the debtor's previous plan paid ALT's junior lenders before it. The lender also objected to the treatment of its claim under the old plan. The revised plan settled the objection.
 
Meanwhile, other secured claims, if any, will be reinstated on the effective date. General unsecured creditors will receive half of what they are owed on the plan's effective date and the other half six months later. The latter portion of the claims would accrue 5% per annum interest. It was unspecified what the unsecured creditors are owed. Hotel Allerton Mezz LLC is the debtor's sole equity holder and will retain its interest.
 
For the plan to go effective, ALT must pay DiamondRock its initial $5 million payment and file the amended and restated loan documents with the court. If those conditions are not satisfied by Jan. 18, the plan would not go effective and the hotel would be sold in Chapter 11. An auction for the hotel would occur no later than Feb. 28 and a hearing to approve the sale would occur no later than March 15. DiamondRock would be allowed to credit-bid the full amount of its claim and ALT would not be permitted any further exclusivity extensions for purposing or soliciting alternative Chapter 11 plans.
 
Goldgar signed an order on April 9 approving the debtor's disclosure statement.
 
The debtor had two prepetition loan tranches -- a $69 million piece held by DiamondRock and a one-time $10 million mezzanine loan held by Hotel Allerton Mezz. It does not appear that Hotel Allerton Mezz will recover anything under the new plan.
 
ALT filed for Chapter 11 on May 5, 2011, because of the 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.
 
The Allerton, located on Michigan Avenue in downtown Chicago, has 443 rooms, 12,000 square feet of meeting and function space, a business center, a restaurant, a cocktail lounge and a fitness center.
 
Debtor counsel Neal L. Wolf of Neal Wolf & Associates LLC did not respond to requests for comment Friday. Nor did David W. Wirt of Locke Lord LLP and James R. Irving of DLA Piper LLP, who counsel DiamondRock.
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