(Reuters) - Cerberus Capital Management CBS.UL and Chatham Lodging Trust (CLDT.N) said on Tuesday that analyst downgrades for the lodging sector, weakening hotel asset sales and a 30 to 40 percent decline in the stocks of competing hotel operators were among the nine reasons it backed out of buying Innkeepers USA Trust INKPQ.PK.
Innkeepers, a hotel operator, filed for bankruptcy last year and later agreed to sell 64 hotels to hedge fund Cerberus and real estate investment firm Chatham.
The deal was due to wrap up in August, but Cerberus and Chatham claimed that a “material adverse event” had occurred with the deterioration of the global economy and walked away. Innkeepers then sued the firms, and a trial begins in bankruptcy court next week.
Most deals — both in and out of bankruptcy court — have material adverse event clauses built into them.
In a court filing on Tuesday, Cerberus and Chatham laid out the facts they will present at the trial, including more details about exactly what economic conditions had changed, such as reduced U.S. gross domestic product projections and the U.S. credit downgrade by Standard & Poor’s ratings agency.
Innkeepers is seeking to keep the $20 million deposit from Cerberus and Chatham, while the firms say that they had properly terminated the deal and deserve the funds back.
The firms argue in the documents that the material adverse event provision allows it to terminate the deal when there is a change or development that could be expected to damage the prospects for Innkeepers. It says Innkeepers is arguing that no such event has occurred, because its business has not at this time been damaged.
The firms also argued against monetary damages Innkeepers is seeking, saying that Innkeepers would be able to do another deal.
The trial is scheduled for October 10 to 12.
The case is in Innkeepers USA Trust et al. v Cerberus Series Four Holdings LLC et all, U.S. Bankruptcy Court, Southern District of New York, no. 11-ap-2557.
Reporting by Caroline Humer in New York, editing by Gerald E. McCormick