Cerberus Wants Innkeepers Discount

(Reuters) – Cerberus Capital Management LP’s deal to buy 64 hotels from bankrupt Innkeepers USA Trust could still go forward, but at a lower price, two sources familiar with the situation told Reuters.

Cerberus and joint venture partner Chatham Lodging Trust, which on Friday terminated a deal to buy the hotels for $1.12 billion, could still be interested in the properties if Innkeepers and its creditors renegotiated, the sources, who are close to the insolvent hotel operator and its creditors, said.

The sources requested anonymity because they are not authorized to discuss negotiations.

A spokesman for Chatham declined to comment, while a representative for Cerberus did not return a adverse change” clause that allowed them to renege on the deal upon the occurrence of any event that could materially change Innkeepers for the worse.

The sources said the triggering event was recent financial volatility threatening the stability of the real estate market. Cerberus and Chatham did not say publicly what the event was.

In recent weeks, stock markets have slid, credit conditions have tightened and high-yield bond spreads have widened amid concern about the health of economies worldwide. Hotels may be hurt in any economic slowdown by consumers reducing discretionary spending and companies cutting business travel.

The $1.12 billion purchase price — about $700 million of which would have been financed with debt — was roughly $25 million more than the second-highest bid from Five Mile Capital Partners, one of the sources said.

A renegotiated price would likely not go below that point, because doing so could trigger a new auction process in which the Five Mile bid would have to be reconsidered, one of the sources said.
Innkeepers has stated publicly its belief that the termination was inappropriate and has said it was considering legal options. Its board has not yet discussed the situation, one of the sources said.

A Chatham unit also has already acquired five additional properties in a separate $195 million deal in bankruptcy court. That acquisition is not affected by the termination.

The case is In re Innkeepers USA Trust, U.S. Bankruptcy Court, Southern District of New York, No. 10-13800.

(Reporting by Nick Brown, editing by Gerald E. McCormick; Additional reporting by Tom Hals)