Bankruptcy judge OKs Innkeepers $1.12 billion sale

By Nick Brown

NEW YORK (Reuters) - Innkeepers USA Trust, the bankrupt manager of more than 70 hotels, gained court approval on Friday of a plan to sell most of its properties to Cerberus Capital Management <CBS.UL> and Chatham Lodging Trust <CLDT.N> for $1.12 billion.

The deal, green-lighted by Judge Shelley Chapman at a hearing in New York, does not resolve a dispute between Innkeepers and its major secured creditors, Midland Loan Services and Lehman Ali Inc, over the creditors' right to pursue certain claims against guarantors of their liens.

The hearing, initially set for last Tuesday, was postponed seven times as the parties worked out of court to resolve objections. Anup Sathy, an attorney for Innkeepers, said most counterparties are on board with the deal and Chapman granted approval pending a chance to read a finalized version of the company's outlined plan.

"I expect not too many more late nights or early mornings, as there have been the last two weeks," Sathy told the judge.

Cerberus and Chatham won ownership of 64 of Innkeepers' 71 hotels on May 3 after a marathon two-day, 12-round auction. The pair beat out Five Mile Capital and Lehman Ali, which had together submitted an initial "stalking-horse" bid, by about $150 million.

A Chatham subsidiary will also take over five of the remaining seven hotels after submitting a $195 million bid.

About $724 million of the deal would come from debt financing, up from $622.5 million in Innkeepers' initial plan.

"This was an agreement that was reached in the hallway, just in the last hour or so," Sathy said.


Midland and Lehman ALI have objected to the purchase plan, saying it would unfairly nix more than $100 million in claims.

The companies, which held combined claims of more than $1 billion arising out of mortgage loans on the 64 primary properties, said the plan would bar them from pursuing claims against Grand Prix Holdings Inc, an entity that guaranteed their liens against Innkeepers.

That right should have been preserved under previously agreed bidding procedures and would unfairly enrich Apollo Investment Corp, Innkeepers' owner and equity holder, the companies said.

The parties agreed to disagree under Innkeepers' latest plan, which allows Midland and Lehman Ali to reserve those claims and raise them at a later point, such as during the plan's confirmation process.

Innkeepers, which owns and operates the Hilton, Hyatt, Marriott and other hotel brands, filed for bankruptcy in July 2010, saying its debt, including $1.29 billion in secured debt, made it too difficult to keep up its properties.

The case is In re Innkeepers USA Trust, U.S. Bankruptcy Court, Southern District of New York, No. 10-13800.

(Reporting by Nick Brown; editing by Andre Grenon)