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Lehman Judge Approves $17.5 Million Innkeepers Restructuring Financing
Lehman Brothers Holdings Inc. won court approval to lend bankrupt Innkeepers USA Trust $17.5 million to help it restructure, overcoming objections from Appaloosa Management LP and a group of Innkeepers preferred shareholders.
Lehman, which is also in bankruptcy, said last month that the refinancing would help it recoup a secured claim by taking stock in the hotel investment company. New York-based Lehman helped finance Apollo Investment Corp.’s 2007 buyout of Innkeepers with a $1.2 billion loan.
“This is a transaction I accept represents a reasonable collar around recoveries for Lehman,” U.S. Bankruptcy Judge James Peck said today. The plan still must win approval from the judge presiding over the Innkeepers case, which is being heard in the same Manhattan courthouse.
Innkeepers, whose parent is managed by an affiliate of Leon Black’s private-equity firm Apollo Global Management LLC, filed for bankruptcy protection on July 19 with a pre-arranged reorganization plan. Palm Beach, Florida-based Innkeepers has stakes in Residence Inn, Hampton Inn and Hyatt Summerfield hotels. Marriott International Inc. is a franchisor of 44 Innkeepers hotels.
In a filing this month, David Tepper’s Appaloosa hedge fund, a Lehman creditor, said the investment bank had “failed to justify its decision” to invest in “yet another troubled real estate company.”
Stock Sale
Lehman arranged to sell half its Innkeepers stock to Apollo for $107.5 million without seeking higher bids, and didn’t explain why it wanted to keep any of the stock, Appaloosa said. Appaloosa also holds an investment in Innkeepers.
Appaloosa lawyer Rachel Strickland objected that Peck was effectively setting a price for the equity of Innkeepers, whose case is before another judge, and said his ruling would thus be “inappropriate.”
Peck overruled the objection, telling Strickland she was appearing in his court in an attempt to influence the outcome of the Innkeepers case.
The Innkeepers preferred holder group, made up of Plainfield Asset Management LLC, Esopus Creek Advisors LLC and Brencourt Advisors LLC, has said the Lehman plan to take stock reduces the potential recovery of the hotel chain’s other creditors and “extinguishes” preferred holders.
‘Makes Sense’
Lehman Chief Executive Officer Bryan Marsal told Bloomberg on Aug. 12 that “the proposed transaction is good for the Lehman estate and makes sense for the Innkeepers estate.”
Separately, Peck said today that Och-Ziff Capital Management Group LLC, a New York hedge fund, can limit its response to a demand for information in Lehman’s investigation of the role of short sellers in its collapse. He told the two sides to confer on what documents would be exchanged pursuant to a Lehman subpoena. Och-Ziff had objected to the subpoena, saying fulfilling the request would cost it $3.3 million.
A rumor circulated in June 2008 that Lehman improperly spun off debt to hedge funds it controlled in order to disguise its debt burden, the company said in an Aug. 11, 2010, court filing. That rumor was false, Lehman said in the filing.
In September 2008, the investment bank, then the fourth largest in the world, filed the biggest bankruptcy in U.S. history, listing assets of $639 billion.
Lehman said it wasn’t sure whether Och-Ziff played a role in spreading the story or was just “the recipient of this rumor.”
Kenneth Bressler, a lawyer for Och-Ziff, told Peck today that the hedge fund owned shares in Lehman and wasn’t a short seller. Bressler also said the U.S. Securities and Exchange Commission had already investigated his client and other hedge funds, making Lehman’s probe unnecessary.
The cases are In re Lehman Brothers Holdings Inc., 08- 13555; and In re Innkeepers USA LP, 10-13794, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Linda Sandler in New York at lsandler@bloomberg.net;
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