Lehman consent to affiliate role in Innkeepers restructuring approved

By Caroline Salls

Pittsburgh, April 14 - Lehman Brothers Holdings Inc. obtained court approval to consent to non-debtor affiliate Lehman ALI Inc.'s entry into a commitment letter for the restructuring of Innkeepers USA Trust, according to an April 14 filing with the U.S. Bankruptcy Court for the Southern District of New York.

Lehman said it would also consent to Lehman ALI's support of Innkeepers' plan of reorganization and its participation, if necessary, in an auction for Innkeepers' assets.

According to the motion, Lehman ALI is the lender for Innkeepers' $367.66 million of pre-bankruptcy financing. The current balance on the loan is $220.2 million, plus interest, late fees and other charges payable under a mortgage loan agreement.

Lehman Brothers said the Innkeepers mortgage loan "represents a potential significant source of recovery for creditors of the [Lehman] debtors."

After extensive negotiations, Lehman ALI, Five Mile Capital II Pooling REIT LLC and Midland Loan Services Inc. reached an agreement with Innkeepers on the terms of a stalking horse bid for substantially all of the Innkeepers enterprise, including 64 of its 71 hotel properties.

Stalking horse bid

Under the proposed Innkeepers restructuring,

• Lehman ALI and Five Mile will post a $20 million deposit, funded equally, to secure their obligations under the restructuring commitment letter;

• Lehman ALI will exchange its interest in the mortgage loan for up to 50% of the new equity in reorganized Innkeepers and a cash payment of at least $26.2 million;

• Innkeepers' Solar debtor-in-possession loan will be repaid in full in cash;

• Five Mile will purchase up to 50% of the new equity of Innkeepers for up to $174.1 million; and

• A third-party investor and new property manager are expected to purchase up to 20% of the new Innkeepers equity for up to $70 million.

The cash received by Lehman ALI and the amount paid by Five Mile will decrease accordingly, and the amount of new equity held by Lehman ALI and Five Mile will be reduced accordingly.

If all of the transactions are completed, Lehman Brothers said Lehman ALI would hold 40% of the new equity in reorganized Innkeepers and receive a cash payment of at least $61 million, representing a $10 million return on its deposit.

New York-based Lehman Brothers Holdings Inc. was the fourth-largest investment bank in the United States. The company filed for bankruptcy on Sept. 15, 2008. Its Chapter 11 case number is 08-13555.

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