In re Innkeepers USA Trust

442 Bankr. 227 (2010)

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In re Innkeepers USA Trust

United States Bankruptcy Court for the Southern District of New York
442 Bankr. 227 (2010)

  • Written by Rose VanHofwegen, JD

Facts

Hotel chain Innkeepers USA Trust (Innkeepers) and 91 affiliates (debtors) reorganized in bankruptcy. Midland Loan Services and Lehman ALI (creditors) held mortgages on Innkeepers’ hotels. Innkeepers intended its parent corporation to receive equity directly or through a side deal negotiated with Lehman just before Innkeepers filed bankruptcy. Innkeepers and Lehman entered a plan-support agreement (PSA) that said Lehman would receive all Innkeepers’ common stock after reorganization in exchange for Lehman’s $238 million of secured debt, even though only 20 of the 92 debtors owed Lehman. A fiduciary-out provision prohibited opting out for a different transaction unless Lehman received more than it would under the PSA. Essentially the PSA tied every debtor to a proposed plan favoring Lehman and preventing other deals. Innkeepers’ chief restructuring officer, Marc Beilinson, testified he had not done a valuation or shopped the term sheet in the market and instead told Innkeepers’ investment banker not to pursue other bidders or transactions. Beilinson had not even disclosed the Lehman deal during a meeting with Midland although Lehman would receive equity in all the debtors, including those securing Midland’s debt. Beilinson did not even review another creditor’s proposal, testifying that the PSA specifically prohibited negotiating or participating in any other plan and probably even prohibited providing other creditors due-diligence materials. Innkeepers moved to assume the PSA. Midland and other creditors holding $1.2 billion in secured debt objected.

Rule of Law

Issue

Holding and Reasoning (Chapman, J.)

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