PALM BEACH, Florida—Leverage plays a key role in Five Mile Capital Pooling REIT LLC/Lehman Ali’s US$1.14-billion bid for bankrupt Innkeepers USA Trust.
The two groups submitted a stalking horse bid for the real estate investment trust last month. Almost 70% of the bid is debt.
• Read “US$1.14b bid for Innkeepers USA.”
The bid includes US$790.5 million of debt, which is a decline of 46.5% when compared with the US$1.478 billion of debt Innkeepers carried when it entered Chapter 11 bankruptcy protection from creditors on 17 July 2010. Accounting for much of the reduction would be the elimination of the company’s floating pool loan of US$352.6 million, according to a debt breakdown provided to the Hotel Investment Barometer by Innkeepers’ financial advisor Moelis & Company. Under the bid’s proposal, US$152.3 million of that debt would be gone through debt impairment with the remaining US$200.3 million paid down or converted into equity or cash.
Another big slice of the decline would be from a lower fixed-pool mortgage of US$622.5 million, the balance of which is 24.6% less than the floating pool loan of US$825.4 million the REIT had when it entered bankruptcy. The loan would be replaced by a non-recourse note with the same maturity of 9 July 2017 and 6.71% interest rate, but would be interest-only for the first 48 months after the effective date and amortization would begin 48 months after the effective date and would be based on a 30-year amortization schedule.
The bid from the Five Mile/Lehman duo is not expected to be the only one.
"We have and expect very robust interest in the portfolio,” said Bill Derrough, managing director and co-head of the recapitalization and restructuring group at Moelis, in a statement. “Given the size and timing of the deal, we further expect that Innkeepers will set a positive tone for 2011 lodging M&A.”
A Bankruptcy Court hearing is set for 8 March in New York to consider the bid, bidding procedures and other issues related to the debt.
Hotel debt
The debt of some of the hotels in Innkeepers’ portfolio would undergo restructuring as well:
• The balance of the Anaheim Hilton loan would drop to US$13 million from US$35.6 million at bankruptcy.
• The Residence Inn Anaheim mortgage would fall to US$25.3 million from US$37.4 million at bankruptcy.
• Debt on the Hilton Ontario would be US$8 million compared with US$35.5 million at bankruptcy.
• The loan for the Anaheim Hilton, Residence Inn Anaheim, and Hilton Ontario would be replaced by a new, non-recourse note with an extension of the maturity date to seven years from the effective date and with no amortization during the loan term.
• Debt for the Doubletree Washington D.C., Residence Inn Tyson’s Corner, and Homewood Suites San Antonio would be replaced by a new, non-recourse note allowing for an extension of the maturity date by one year and with no amortization during the loan term.
• Prepayment will be permitted at par without penalty and defeasance requirements will be waived for the new loan terms.
Contact:
Moelis & Company
New York office phone: 212-883-3800
Boston office phone: 617-341-7100
Chicago office phone: 312-589-3001
Dubai office phone: 971-4-304-5000
London office phone: 44-(0)-207-634-3500
Los Angeles office phone: 310-443-2300
Sydney office phone: 61-2-8288-5555
Innkeepers USA Trust
Phone: 561-835-1800
Five Mile Capital Partners
Phone: 203-905-0950
E-mail: Info@FiveMileCapital.com