Amalgamated Bank can bid for the InterContinental Hotel at O’Hare International Airport near Chicago using the amount it is owed by bankrupt owner River Road Hotel Partners LLC, a federal appeals court ruled. River Road may appeal to the U.S. Supreme Court, its lawyer said.
The three-judge panel in Chicago today affirmed a ruling by U.S. Bankruptcy Judge Bruce Black that denied River Road’s motion to prevent its largest creditor, Amalgamated, from making a so-called credit-bid at an auction for the assets.
“Because the debtors’ proposed auctions would deny secured lenders the ability to credit bid, they lack a crucial check against undervaluation,” the judges said in a filing in the 7th U.S. Circuit Court of Appeals. The ruling also applied to the debtors’ proposed sale of a Radisson Hotel at Los Angeles International Airport.
A different appeals court last year denied a credit-bid in the Chapter 11 case of the owners of the Philadelphia Inquirer newspaper. The contrary rulings may mean a hearing by the U.S. Supreme Court.
“The debtors are considering whether to seek a petition for cert to the Supreme Court,” David Neff, a lawyer for River Road, said in a telephone interview.
Black is scheduled to hold a hearing tomorrow on whether to approve a Chapter 11 plan for River Road proposed by Amalgamated Bank. The bank would take control of the O’Hare assets and sell them under the plan. River Road wasn’t allowed to submit its own plan until after the appeal was decided.
River Road filed for Chapter 11 creditor protection in 2009 after failing to negotiate new loan terms with secured lenders. Last June, River Road asked Black to approve procedures for auctions of the assets.
The motion included a request to deny New York-based Amalgamated’s proposal to credit-bid for the properties. After a trial, the judge rejected the motion, saying that River Road hadn’t shown “cause” why Amalgamated should be prevented from credit-bidding. River Road appealed.
Och-Ziff Real Estate Acquisitions made an offer of $42 million that would be the so-called stalking-horse bid at an O’Hare auction. The bid represented only 26 percent of Amalgamated’s pre-Chapter 11 claim of more than $160 million, the bank said. Amalgamated, the agent for loans to River Road from itself and from U.S. Bank NA, then filed its own Chapter 11 plan.
3rd Circuit Ruling
River Road based its appeal on a ruling in March 2010 from the 3rd U.S. Circuit Court of Appeals in the Chapter 11 case of the owners of the Philadelphia Inquirer. The judges said bankruptcy law doesn’t entitle secured creditors to bid what they are owed instead of cash at a public auction.
Black said in his decision on River Road in October that he agreed with a dissenting opinion rather than the majority’s in the 3rd Circuit ruling. Seventh Circuit Judge Richard Cudahy said in today’s decision he also agreed with the dissenting opinion in the Philadelphia case.
If Black had been asked to approve River Road’s own Chapter 11 plan over the dissenting votes of its lender, he would have been required to use the so-called cramdown procedure of the bankruptcy code. The 7th Circuit decision splits from rulings by the Courts of Appeal in Philadelphia and in New Orleans that a plan can be crammed down even if lenders are not allowed to bid at auction using secured debt rather than cash.
September 2008 Opening
The secured lenders eventually won control of Philadelphia Newspapers LLC with a cash bid at an auction.
The Intercontinental Hotel Chicago O’Hare, a 556-room hotel located 14 miles (23 kilometers) west of downtown Chicago, opened in September 2008, days before Lehman Brothers Holdings Inc. (LEHMQ) filed for bankruptcy. The ensuing economic recession had a “devastating impact” on the hotel industry, River Road said in its Chapter 11 filing.
The appeal is River Road Hotel Partners v. Amalgamated Bank, 10-3597, 7th U.S. Circuit Court of Appeals (Chicago). The bankruptcy case is In re River Road Hotel Partners LLC, 09-30029, U.S. Bankruptcy Court, Northern District of Illinois (Chicago).
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