Innkeepers USA Trust , a U.S. real estate investment trust with interests in about 73 hotels, is getting ready for a possible bankruptcy filing after missing debt payments earlier this month, according to four people familiar with the matter.
The firm, which was bought out by Apollo Investment Corp in 2007 in a $1.5 billion deal, has hired law firm Kirkland & Ellis and investment bankers Moelis & Co to advise it on restructuring, these people said.
The Palm Beach, Florida-based trust is preparing for all restructuring contingencies, including a possible bankruptcy, these people said, asking not to be named because the information is not public.
Innkeepers is the latest in a string of private equity hotel deals completed at the height of the buyout boom to face restructuring, joining companies like Hilton Worldwide, which restructured its debt, and the hotel chain Extended Stay America , which filed for bankruptcy.
Innkeepers did not return several calls seeking comment on Tuesday.
Innkeepers has interests in 73 upscale, extended-stay and mid-priced hotels run by companies like Marriott International , Hilton, and Starwood Hotels & Resorts . About half of its properties are operated under Marriott's Residence Inn brand.
A week ago, Innkeepers said it missed interest payments on some debt and warned that it could miss future payments. It said at the time that it had hired legal and financial advisers to assist it with restructuring.
An $825.4 million loan on 45 hotels owned by Innkeepers was transferred to the care of special servicer Midland Loan Services, Fitch Ratings said on Tuesday.
The loan on the hotels had been halved and securitized into two commercial mortgage-backed securities deals, according to a report from ratings agency Realpoint.
The 45 properties represent more than 60 percent of Innkeepers' hotels in the United States and the portfolio was originally appraised at $1.173 billion at issuance near the height of the U.S. commercial real estate boom in 2007, according to Realpoint.
Lehman Brothers Holdings Inc provided $1.2 billion of financing for Apollo's 2007 buyout of Innkeepers. The deal was one of 10 deals cited by Lehman's bankruptcy examiner last month for substantially growing the balance sheet of Lehman's real estate group ahead of the bank's collapse.
Since 2007 the value of hotels has dropped sharply after businesses and consumers cut down on travel, hurting room rates and escalating vacancies. This has left many owners hard-pressed to pay their mortgages.
The number of hotel loans 30 or more days delinquent rose to nearly 17 percent in March, according to Trepp LCC.
While U.S. hotel companies are starting to see an increase in business after the economic downturn of the past two years, it is difficult to raise room rates in many parts of the United States. Through February, rates were down 5.7 percent after a nearly 9 percent decline in 2009, according to Smith Travel Research.
(Reporting by Emily Chasan and Deepa Seetharaman, additional reporting by Ilaina Jonas and Megan Davies)