Innkeepers, Cerberus reach tentative sale pact

NEW YORK Thu Oct 13, 2011 1:57pm EDT

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NEW YORK (Reuters) - Cerberus Capital Management CBS.UL and Chatham Lodging Trust (CLDT.N) have reached a tentative agreement to buy bankrupt Innkeepers USA Trust INKPQ.PK at a lower price than in an earlier deal that fell apart, a source close to the talks said.

Cerberus and Chatham would acquire 64 of the bankrupt hotel operator's properties for about $1 billion in a transaction that could become official as soon as Thursday, according to the person, who spoke anonymously because talks are private.

The parties are confident the deal will get done, though it is not official and could still unravel, the person said.

The agreement would avoid a trial scheduled for next week over a decision by Cerberus and Chatham to walk away from a previous agreement to buy the same 64 hotel properties for $1.12 billion.

The discounted purchase price would still be higher than the initial $971 million baseline, or "stalking horse," bid offered by Five Mile Capital Partners and Lehman Ali Inc, a non-bankrupt unit of Lehman Brothers Holdings Inc LEHMQ.PK.

Innkeepers declined to comment on Thursday. A spokesman for Cerberus also declined to comment.

The prior deal fell apart in August, when Cerberus and Chatham invoked a so-called material adverse event clause, which they contended allowed them to back out if an event occurred that could adversely affect Innkeepers' business.

They said downgrades in the lodging sector, weakening hotel asset sales, and a 30 percent to 40 percent decline in the shares of competing hotel operators contributed to the decision.

The move sent chills through the hotel industry and contributed to fears of a double-dip recession. But in pretrial court filings, Innkeepers, which operated 72 hotels under the Hilton, Marriott and other brands, said its business was stable and its hotels had performed "at or near budget."

It said its buyers used the clause as a pretext to negotiate a lower price.

The lawsuit brought by Innkeepers, which sought to force the buyers to close on the sale, was initially slated for trial last Monday, but the sides delayed opening arguments four times as an eleventh-hour settlement progressed.

The case is Innkeepers USA Trust et al v. Cerberus Series Four Holdings LLC et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-2557.

The Innkeepers bankruptcy is In re Innkeepers USA Trust, in the same court, No. 10-13800.

(Editing by Steve Orlofsky)

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