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Cerberus, Chatham complete Innkeepers USA deal

28 Oct 2011

Global buy-out firm Cerberus Capital Management and Chatham Lodging Trust have completed the $1.02bn acquisition of 64 hotels from affiliates of Innkeepers USA, following a prolonged sale process in which the bankrupt hotel chain sued the two firms after an earlier deal fell apart.

The deal includes about $675m of mortgage debt on 45 of the hotels with a weighted average interest rate of 6.71 per cent set to mature in 2017.

Following the deal, Chatham will own around 10.3 per cent interest in the joint venture and funded its $37m investment in the joint venture with borrowings under its senior secured revolving credit facility.

All but one of the 64 acquired hotels will continue to be managed by Island Hospitality Management, a hotel management company that is 90 per cent owned by Jeffrey Fisher, Chatham’s CEO and president.

At the end of August, Innkeepers reportedly filed a complaint which rejected Cerberus’ citing of an MAE clause within the buy-out agreement, which the firm used to allege that the terms of the transaction contained language which would allow it to exit the deal due to changes in ‘general market conditions’.

The company reportedly said no such change had taken place, and dismissed the withdrawal as a tactic being used to get a better deal. Innkeepers subsequently demanded that the pair continue with the transaction, or pay monetary damages and let it keep their $20m deposit.

Innkeepers, which runs hotels under brands such as Hyatt, Hilton and Marriot, reportedly filed for bankruptcy in 2010, and was looking for potential investors to rescue the company in January this year.
The company’s obligations include $1.29bn in secured debt, which made it difficult to maintain its property portfolio.

Cerberus won an auction to acquire the bulk of assets held by the trust in May, and agreed to pay $1.1bn for the assets, in partnership with fellow bidder Chatham Lodging.

The deal included interests in a portfolio of hotel properties representing collateral for Innkeepers’ $825.4m fixed rate mortgage pool loan, and its $238m floating rate mortgage pool loan.

Chatham also won a separate auction for five hotels, agreeing to pay a total of $195m.

Cerberus has had a difficult year. Last month news reports confirmed that the firm had failed to find a buyer for beleaguered Japanese bank Aozora. In May Cerberus portfolio company Focus called in the administrators, leaving its 175 home improvement stores at the risk of closure.

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