Innkeepers Wins Judge's Permission to Borrow $53 Million in Bankruptcy

Innkeepers USA Trust won court permission to borrow as much as $53 million to finance operations in bankruptcy as a judge delayed ruling on whether the real-estate investment trust could use cash collateral.

U.S. Bankruptcy Judge Shelley Chapman approved the loan from Five Mile Capital Partners LLC today in Manhattan court. She deferred ruling on whether Innkeepers can use cash collateral of lenders after asking for more details about cash flow forecasts and whether money would be borrowed among different tranches of loans.

“There was substantial arms-length negotiation” between Innkeepers and Five Mile and a need to secure the financing, according to evidence on the record, Chapman said.

Innkeepers, whose parent is managed by an affiliate of Leon Black’s private-equity firm Apollo Global Management LLC, filed for bankruptcy on July 19 with a pre-arranged reorganization plan. Chapman is scheduled to hear tomorrow Innkeeper’s motion to borrow $17.5 million from Lehman Brothers Holdings Inc. and enter a plan support agreement.

Lenders and some shareholders objected to the Five Mile loan, saying it would be secured by some properties which may have value that could go to shareholders. Shareholders also requested an examiner to probe the plan support agreement, under which Lehman would back Innkeepers’ exit plan in exchange for getting all of the hotel company’s stock and splitting it with Apollo.

Midland Objection

Midland Loan Services, the company’s largest creditor, objected to the use of cash in today’s hearing, saying its collateral wouldn’t be protected.

Midland, servicer of a $825.4 million loan to Innkeepers, first objected to Innkeepers’ motion for cash collateral on July 19, the same day the company filed for bankruptcy along with a plan to reorganize supported by Lehman Ali, a unit of Lehman Brothers Holdings, and Innkeepers’ owner, Apollo Investment Corp.

Midland sought court permission yesterday to file a rival plan. Five Mile would pay $263 million for all of the new equity in Innkeepers under Midland’s plan, giving a greater return to all creditors except Lehman Ali, Midland said.

Midland’s plan values the company at $1.04 billion, $125 million more than Innkeepers’ proposal, and would include an auction to test for higher bids. Creditors holding $1.2 billion in secured debt oppose Innkeepers’ plan, Midland said.

The case is In re Innkeepers USA LP, 10-13800, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter for this story: Tiffany Kary in New York at tkary@bloomberg.net.

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