FT. LAUDERDALE, FL-Palm Beach-based Innkeepers USA Trust, owner of upscale, extended-stay properties throughout the US, filed for Chapter 11 bankruptcy protection on Monday after reaching agreements with its creditors. The company, which filed in the US Bankruptcy Court in the Southern District of New York, owns interests in 72 hotels in 19 states and Washington, DC.

The agreements with creditors will allow Innkeepers to maintain its portfolio. As of yesterday, the company had incurred $1.29 billion of secured debt. The debtor’s largest secure loan is a securitized mortgage from Lehman ALI, Inc., a subsidiary of Lehman Brothers Holdings Inc. The loan, with a face amount of $825 million, is collateralized by 45 of Innkeepers’ hotels. Under the agreement reached before Innkeepers filed bankruptcy, Lehman ALI, Inc. will assume ownership of the company in exchange for forgiving $238 million in debt. Lehman itself is still going through the bankruptcy process.

In addition, Marriott International, Inc., one of Innkeepers’ most important franchisors, has agreed that it would continue to keep the Marriott name on Innkeepers’ hotels--the absence of which would have caused a loss in value--as long as Innkeepers keeps its agreement to do improvements to those hotels.

Innkeepers has secured debtor-in-possession financing totaling $67 million, $50.75 million from Five Mile Capital Partners and $17 million from an affiliate of Lehman ALI, Inc. It will invest the money in improving 23 Marriott hotels, according to court documents.

The plan worked out ahead of the Chapter 11 bankruptcy filing was very significant, according to court documents, especially because it includes agreements with Marriott and Lehman. According to those documents, “…it provides for the significant deleveraging of the debtors’ (Innkeepers’) balance sheet and permits the debtors to maintain their franchise agreements and existing portfolio of hotel properties. “

Innkeepers, whose equity investors will be wiped out under the bankruptcy plan, has as its goal the elimination of $700 million in debt during the bankruptcy process. The company took on hundreds of millions of dollars in debt in a $1.5 billion buyout by the Apollo Investment Corp. in 2007.

“The company is and will continue to operate business as usual throughout and after the restructuring,” says Marc Beilinson, chief restructuring officer for Innkeepers. “No significant operational changes are expected to be made post-restructuring,” he says.

“The Chapter 11 bankruptcy will be an expedited process, but the company won’t comment on how long it will take for Innkepers to get through it,” says Michelle Campbell, spokesperson for Innkeepers at AP Services, LLC in Los Angeles. “And, at this point, there is no schedule for when the court will approve the bankruptcy plan,” she says.

Instant Insights /

Innkeepers USA Files for Chapter 11

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