Highland Hospitality Considers Chapter 11

(Reuters) – Private equity firm JER Partners is exploring a possible bankruptcy filing for the debt-ridden Highland Hospitality Corp after the hotel owner failed to repay about $868 million in debt due earlier this month, the Wall Street Journal said.

The debt default has given certain creditors the right to seek foreclosure, and a bankruptcy filing likely would block the attempt, people familiar with the discussions told the paper.

Private equity firm Blackstone Group (BX.N), Wells Fargo & Co (WFC.N), Barclays PLC (BARC.L), Prudential Financial Inc (PRU.N) and Ashford Hospitality Trust (AHT.N) besides JER Partners are creditors of the hotel chain and could decide its fate, the paper said.

A Chapter 11 bankruptcy filing is not expected until at least next month, the people told the Journal, cautioning that the talks are at an early stage.

The hotel chain, with properties like the Ritz-Carlton and Hilton Boston Back Bay, has $1.8 billion in debt. It is also in talks with Abu Dhabi Investment Authority and other potential investors for a $200 million cash infusion to get some breathing room, the paper said.

To avoid bankruptcy, Ashford and Prudential last month bought a $98 million slice of Highland’s junior debt from J.P. Morgan Chase & Co (JPM.N), it added.

JER Partners, the private equity investment arm of J.E. Robert Companies, bought Highland for $2.1 billion, including the assumption of $210 million in debt in 2007, according to a JER press release that year.

Spokespersons for JER, Highland’s creditors and Abu Dhabi declined to comment to the Wall Street Journal. JER could not immediately be reached for comment by Reuters outside regular U.S. business hours. (Reporting by Archana Shankar in Bangalore; Editing by Muralikumar Anantharaman)