Ashkenazy Enterprises, which runs some of the toniest hotels in the Los Angeles area, filed for bankruptcy protection Thursday to head off a foreclosure by Southern California Savings & Loan on one of its hotels in West Hollywood.
The hotel and real estate company said it filed a petition in Los Angeles under Chapter 11 of the U.S. Bankruptcy Code that will allow it to continue normal operations while it draws up a reorganization plan to pay off creditors.
The bankruptcy filing is the result of months of financial problems for Ashkenazy Enterprises, whose president and controlling shareholder is developer Severyn Ashkenazy.
The bankruptcy action narrowly headed off an attempt by Southern California Savings to foreclose on Le Dufy Hotel after Ashkenazy Enterprises fell behind on payments on an $8.5-million loan.
Ashkenazy claimed in a phone interview that he needed only another 30 days to sell the property and pay off the loan. He said the petition does not cover most of his other holdings.
"It is regrettable that one lender holding a relatively small percentage of the company's total debt has forced this bankruptcy against the best wishes of the majority of the secured and unsecured lenders," he added in a statement.
The assets of Ashkenazy Enterprises and its affiliated companies total $250 million and its debts total $145 million, giving the company a healthy net worth. But an official of Southern California Savings suggested that the S&L simply ran out of patience.
"He has been delinquent on this loan for 10 or 11 months," said William Miller, vice president for asset management. "It's not as though we haven't worked with him."
Southern California Savings is one of several California S&Ls seized by federal banking regulators last year. The S&L was declared insolvent in June but has been kept open while new management figures out how to dispose of the assets.
Ashkenazy Enterprises said it has been working for months with its major lenders--which include about 20 banks and savings and loans across the country--to restructure its loans and sell off assets to stem its "liquidity problems."
Its two lead lenders are Beverly Hills Savings & Loan, which it owes $36 million, and Western Savings & Loan in Salt Lake City, which it owes about $65 million, Ashkenazy said. Officials at those S&Ls could not be reached for comment.
Ashkenazy Enterprises and its affiliated partnerships own five hotels on the Westside, including L'Ermitage in Beverly Hills and Le Bel Age and Le Mondrian in West Hollywood. The Ashkenazy trademark is small hotels that have luxury suites and an elegant European-style ambiance.
Attorneys for Ashkenazy said this bankruptcy petition covers Le Dufy and Le Mondrian but not the hotel and real estate operations of other Ashkenazy Enterprises affiliates. Le Mondrian, which is also in financial difficulty, and Le Dufy are former apartment buildings that were converted into hotels in the past two years.
Ashkenazy acknowledged, however, that his overall hotel and real estate operations remain delinquent on loans of about $110 million. He could not assure that he would not place these other operations into bankruptcy proceedings, although he added that, "as of this moment, we hope to work out our remaining problems outside the bankruptcy court."
He has blamed his financial problems in part on higher than expected construction costs and lower than anticipated revenue at several new hotels opened on the Westside in the past two years.
Yet, in his statement, Ashkenazy noted that it is "ironic that this (bankruptcy petition) comes at a time when all the company's hotels are reporting improved occupancy and operating profits."
In the phone interview, Ashkenazy said he had found a buyer--which he identified only as a privately held Canadian real estate concern--willing to buy Le Dufy for nearly $15 million. That would have been enough to pay off the Southern California Savings loan and bring several million dollars of much-needed cash into the company, he pointed out.
"It's very hard to understand," Ashkenazy said. "A lender should look toward solving the problem, not torpedoing the solution."
However, Southern California Savings' Miller said it was inevitable that one of the lenders would attempt a foreclosure. "If it wasn't us, it would have been some other lender," he said.