Innkeepers reach tentative deal with Cerberus and Chatham

WSJ and Nomura reporting ~$1 billion. Nomura notes this would result in an 18% loss severity - not too shabby in my opinion.

Cerberus and Innkeepers USA Trust reach a settlement - lower execution price

From Bloomberg:

The settlement includes a reduction in the price New York- based Cerberus and Chatham Lodging Trust will pay to acquire Innkeepers, said the people, who didn’t disclose the new price and asked not to be named because the talks are private. The accord, reached after a weekend of negotiations, isn’t final and could still fall apart, said the people, and a final agreement is subject to approval by the U.S. bankruptcy court judge overseeing Innkeepers’ restructuring.

Five Mile takes another bite at Innkeepers USA

The WSJ reports:

Five Mile submitted a preliminary nonbinding offer for Innkeepers earlier this week to acquire its 64 remaining hotels, the people said. The offer is slightly higher than an opening bid Five Mile and Lehman made for Innkeepers in a May bankruptcy-court auction. Since then, the two sides have been negotiating terms. The deal consists mostly of assumed debt and converting debt to equity, the people said.

Under the broad contours of the proposed deal, Five Mile would assume a substantial portion of Innkeepers's senior mortgage debt and, along with investment partners, make certain cash payments to creditors.

Those investment partners are Starwood Capital Group and Hersha Hospitality Management, which both would end up owning a piece of Innkeepers, people familiar with the matter said. Hersha, a hotel-management company partially owned by Starwood, would manage the properties for the ownership group, one of the people said.

Lehman would convert a chunk of its mortgage debt to ownership stakes in Innkeepers. Some of the remaining mortgage debt would be paid back, people familiar with the matter said.

Overall, the assumed debt, conversion of Lehman debt to equity and other cash contributions bring the value of the deal to more than $1 billion, the people said.

Timeline:

* Innkeepers Keeps Chapter 11 Control 9/14/2011
* Innkeepers, Cerberus Spar 9/1/2011
* Innkeepers Sues Cerberus 8/30/2011
* Innkeepers in Escrow Fight 8/24/2011
* Cerberus Puts Off Closing Innkeepers Deal 8/17/2011

Innkeepers sues Cerberus and Chatham

Dealbreaker - with nice imagery
WSJ - more detail

Innkeepers USA Trust said Cerberus Capital Management LP abandoned a $1.12 billion deal to buy the hotelier as part of a ploy to pay a lower price and must close the transaction or pay "substantial damages."

In a lawsuit filed Monday in a federal bankruptcy court in New York, Innkeepers said the two sides "stood at the goal line" Aug. 5 to consummate the deal when the private-equity firm told the hotel owner it wouldn't close, offering "no explanation." The decision upended plans by Innkeepers to exit bankruptcy protection, where it has been since July 2010.

Cerberus, which had agreed to buy 64 Innkeepers hotels with partner Chatham Lodging Trust, terminated the deal earlier this month, saying a "material adverse effect" had occurred that gave it permission to walk away. The buyout firm has since asked for a $20 million deposit on the deal to be returned.

Cerberus uses MAC clause to back out of $1.1 billion Innkeepers USA

From Bloomberg:

Cerberus Capital Management LP and Chatham Lodging Trust terminated their agreement to buy 64 hotels from Innkeepers USA Trust for $1.1 billion, citing a possible adverse change in the business.

Cerberus & Chatham Win Innkeepers

Bought 65 hotels for $1.1 billion, 7 hotels still for sale.

See here for more on the Innkeepers saga...

Innkeeper's USA Update

Bloomberg reports (sorry, no link) that the 72-hotel Apollo-owned Innkeepers portfolio has a new bankruptcy proposal filed pushing for control by Five Mile and Lehman. This follows the prior proposal which was ultimately blocked by Midland, one of the Specials because, at least in part, it resulted in the sponsor retaining an equity position.

The current plan focuses on the preferred equity holders retaining an interest in the 5 hotels that are not in CMBS deals and proposes an auction to see if there is a better bid from the market on the portfolio.

When Special Servicer's Attack

At the bottom of the WSJ's article, Street Aims to Reboot CMBS, there was an interesting piece of news: CWCapital is denying Trimont any of the $19mm in fees related to the Extended Stay workout. Trimont was serving as the Special for about a year until investors voted to replace them with CWCapital. The WSJ article implies that CWCapital thinks that Special Servicing Fees are performance based with the following excerpt pulled from the court filings: "during the nearly one year that Trimont was the special servicer, it had no success working out the loan or resolving the bankruptcy case."

The article also talked about the Innskeeper loan dispute between LNR and Midland. I excerpted below so you can skip over the beginning of the article, which is wholly uninteresting, but CrabsOfSteel has reminded us all that it's sometimes worth reading threw the entire article for the good bits. h/t CrabsOfSteel.

That type of gamesmanship is highlighted in two recent lawsuits related to the bankruptcies of Innkeepers and Extended Stay. In the Innkeepers case, LNR Partners Inc. alleges in a lawsuit filed Oct. 27 in New York state Supreme Court that another investor reneged on an agreement to name LNR the special servicer overseeing Innkeepers' $825 million CMBS loan.

LNR alleges that it had a pact with CRES Investment, a division of Presidio Holdings II LLC, stipulating that CRES would hire LNR as special servicer if CRES's slice of the mortgage was deemed the controlling stake. As a side bet, LNR bought slices of the mortgage on its own to better its chances of getting the designation.

However, LNR claims in its lawsuit that CRES, once it was named controlling stakeholder, didn't hire LNR, instead keeping Midland Loan Services as special servicer. "CRES' failure to comply with its contractual obligations is depriving LNR of its bargained-for right to control workout and resolution of the Innkeepers loan," the lawsuit reads.

CRES representatives didn't return calls seeking comment. LNR declined to comment.

A similar dispute emerged in the Extended Stay bankruptcy. Trimont Real Estate Advisors Inc. alleges in a lawsuit filed Sept. 21 in U.S. District Court in Washington, D.C., that rival special servicer CWCapital Asset Management LLC owes it a portion of a $19 million restructuring fee. CWCapital received the fee as special servicer of Extended Stay's $4.1 billion securitized mortgage.

However, Trimont said it is entitled to some of the fee because it was the special servicer in the case for roughly a year.

Prior to a bankruptcy auction that resulted in a sale of Extended Stay and its 680 hotels, Trimont was abruptly replaced as special servicer with CWCapital by investors Bank of America Corp., UBS Securities and Cerberus Capital Management LP.

CWCapital has asked a judge to dismiss the case, noting in its court filing that "during the nearly one year that Trimont was the special servicer, it had no success working out the loan or resolving the bankruptcy case."

Innkeepers

Innkeepers filed for bankruptcy, in front of looming refi problems...

Forty-four of the properties are Marriott-flagged, and they've agreed to forbear any claims so long as 23 are "improved". In addition to the senior mortgage in LBUBS 2007-C7 AND LBUBS 2007-C6, there is also a $50.7mm loan from Five Mile, and the new agreement calls for a $17mm loan to improve the Marriott properties. Equity is wiped out in the plan.

From Bloomberg:

The hotel company, laboring under $1.42 billion in debt, holds interests in 72 upscale and midprice extended-stay hotels operated under brands such as Marriott, Hyatt and Hilton. The hotels are spread across 19 states and Washington, D.C.
...
took on hundreds of millions of dollars in debt in a $1.5 billion buyout by Apollo Investment Corp. Apollo Investment, which receives advisory services from an affiliate of private-equity firm Apollo Global Management, purchased the hotel company around the top of the market in 2007. Apollo declined to comment.

and then the journalist just takes a nose dive and loses all credibility:

The loans were then carved up and sold to investors as collateralized mortgage-backed securities.

Really, he has a couple of quotes after that which might be worth reading if the C in CMBS stood for "collateralized".