* Backed out of $1.12 bln deal in August; Innkeepers sued
* Cerberus says unstable markets triggered pull-out clause
* Says Innkeepers not entitled to major damages
(Adds comment from Innkeepers in 7th graph)
By Nick Brown
NEW YORK, Sept 12 Cerberus Capital Management
LP [CBS.UL] said economic instability triggered its decision to
end a $1.12 billion purchase deal with bankrupt hotel operator
Innkeepers USA Trust INKPQ.PK.
Responding to a lawsuit filed by Innkeepers in U.S.
Bankruptcy Court in Manhattan, Cerberus said "unforeseeable"
turmoil in the markets impacted Innkeepers' business,
triggering a clause in the deal's contract allowing it to end
The response, filed late on Friday, was Cerberus' first
public explanation for invoking the "material adverse effect"
clause to end the agreement.
Innkeepers, which had agreed to sell 64 hotels under brand
names like Hilton, Hyatt and Marriott, sued Cerberus and its
joint venture partner on the deal, investment firm Chatham
Lodging Trust (CLDT.N), saying they backed out without
explaining why. Cerberus and Chatham backed out of the purchase
Innkeepers has said it received "vague" indications that
economic fluctuation had triggered the decision, but chastised
Cerberus and Chatham for their opaqueness on the issue.
The hotel operator has said its business is performing well
and that it does not believe an adverse change has taken
"Cerberus and Chatham signed a binding and irrevocable
written agreement to acquire 64 hotels from Innkeepers," Marc
Beilinson, the company's chief restructuring officer, said in a
statement on Monday. "In their answers, Cerberus and Chatham
yet again failed to provide any basis that a material adverse
event has occurred with respect to Innkeepers' hotels."
Material adverse event clauses allow buyers to pull out of
purchase commitments if the seller's business suffers a
material change, but the language of Innkeepers' clause
included general market volatility as a potential trigger.
Cerberus said in court papers that "adverse changes in the
debt and equity capital markets between May 16, 2011, and
today" changed Innkeepers for the worse.
Comparable hotel operators have seen 30 percent to 40
percent declines in equity, Cerberus said. It also cited the
downgrade by Standard & Poor's of the United States' credit
rating, and noted that some analysts are predicting a second
Innkeepers, owned by Apollo Investment Corp (AINV.O), is
demanding a court order forcing Cerberus and Chatham to close
on the deal, or compensatory damages if they do not.
Cerberus said in its filing that, even if a breach has
occurred, the terms of the deal limit damages to the $20
million deposit included in the buyout agreement.
Chatham, in a separate filing on Friday, denied the
allegations and echoed Cerberus' position against damages.
The bankruptcy case is In re Innkeepers USA Trust, U.S.
Bankruptcy Court, Southern District of New York, No. 10-13800.
The lawsuit is Innkeepers USA Trust et al v. Cerberus
Series Four Holdings LLC et al, in the same court, No.
(Reporting by Nick Brown; editing by Gunna Dickson and Carol