UPDATE 3-Innkeepers USA files for Chap 11 bankruptcy

* Existing shareholders are wiped out

* More than $1 billion both assets and liabilities

* $67 million debtor-in-possession credit facilities (Adds bylines, details on Apollo and Lehman investments, adds background on hotel business)

By Chelsea Emery and Santosh Nadgir

NEW YORK/BANGALORE, July 19 (Reuters) - Innkeepers USA Trust INKPP.PK, a U.S. hotel owner whose portfolio includes some Residence Inn and Hampton Inn hotels, filed for Chapter 11 bankruptcy on Monday, citing crippling debt that hurt its ability to maintain and upgrade its properties.

Innkeepers owns and operates a portfolio of about 72 upscale and mid-priced hotels under recognized brands such as Marriott, Hilton and Hyatt. About half of its properties operate as Marriott's Residence Inn hotels.

The company, laboring under $1.29 billion in secured debt, is in default of all 11 of its loan agreements.

Private equity company Apollo Investment Corp (AINV.O) bought the Palm Beach, Florida, hotel owner at the height of the real estate market in 2007.

"Is there a lesson to take away? You buy at the top of the market, you get whacked," said Mark Podgainy, senior director at corporate turnaround firm Getzler Henrich & Associates.

Apollo Investment Corp is managed by an affiliate of the private equity firm Apollo Global Management LLC. A spokesman declined to comment on the Innkeepers bankruptcy filing.

Apollo Investment Corp has already written down its original investment in Innkeepers by 99 percent, according to securities filings.

SLUMP

Business travelers and employees on temporary work assignments or training programs make up Innkeepers' main customer base for its extended-stay properties.

"Business travel is coming back a little bit, but it's not like a few years ago when people were traveling all the time," said Podgainy. "People aren't staying as long as they used to."

Innkeepers is the latest in a string of private equity hotel deals completed at the top of the buyout boom to face restructuring, joining companies such as Hilton Worldwide, which restructured its debt, and the hotel chain Extended Stay America Inc [ESAIN.UL], which filed for bankruptcy.

Since 2007, the value of hotel properties has fallen as 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 recovery is going to come over time and it's not happening fast enough for these heavily levered portfolios," said Chris Woronka, a hotel analyst with Deutsche Bank.

About $26.6 billion worth of U.S. hotels -- or 17 percent of the overall U.S. hotel market -- are struggling to meet financial obligations as of June 2010, according to Real Capital Analytics. This is up from just 10 percent a year ago.

Innkeepers expects to have fixed-rate debt of up to $550 million and secured debt of up to $150 million after its restructuring.

FINANCING DEALS

The real estate investment trust has reached an agreement with senior lender Lehman ALI Inc, a subsidiary of Lehman Brothers Holdings Inc LEHMQ.PK, to convert its secured claims to equity in the reorganized company. Lehman Brothers Holdings, now bankrupt, had provided $1.2 billion in financing for the company's 2007 buyout.

Of Innkeepers' $1.29 billion of total secured debt, it owes Lehman a little more than $1.19 billion.

Lehman will get 100 percent equity in the reorganized company, plus full satisfaction of a $238 million secured claim.

The remaining secured lenders will receive new secured notes. Common shareholders will be wiped out.

Marriott International Inc (MAR.N), with whom 44 of Innkeepers' hotels have franchise agreements, said it will support the company's restructuring plan and will not seek to remove its name from some of Innkeeper's hotels as long as the company follows through with certain property improvements.

"Obtaining Marriott's forbearance with respect to the debtors' critical hotel properties was also a precursor to the debtors' successful negotiations with Lehman to reach the terms of a consensual restructuring transaction and prearranged plan," the company said in court documents.

Innkeepers has commitments for two debtor-in-possession financing agreements, for a total $67 million. A $17 million Lehman-backed DIP loan will be used for investments on some hotels.

The case is In re Innkeepers USA Trust, US Bankruptcy Court, Southern District of New York, No. 10-13800. (Reporting by Santosh Nadgir in Bangalore and Chelsea Emery in New York; additional reporting by Deepa Seetharaman and Emily Chasain in New York; editing by Derek Caney, Robert MacMillan and Andre Grenon)