SANTA ANA — In a bid to stave off the foreclosure sale of the Irvine Marriott, the investor group that owns the 485-room hotel has filed for protection from creditors in federal bankruptcy court here.
A bankruptcy filing temporarily stops the foreclosure sale, which was scheduled for Friday, and other debt collection efforts by creditors.
The hotel, which is near John Wayne Airport, is still operating. The Dec. 28 bankruptcy petition was not for the hotel but for Cigna Hotel Associates I, the investment partnership that owns it.
The Chapter 11 petition was filed by Cigna after the federal Resolution Trust Corp. reinstated foreclosure proceedings it had postponed after seizing Mercury Savings & Loan Assn., one of the partnership's principal lenders, in February.
It was the investor group's failure to make payments on a $55-million loan from Mercury that helped topple the Huntington Beach thrift. The S&L was declared insolvent and seized by regulators, in part because it was forced to write down $32 million in losses when Irvine Marriott investors and one other hotel investment group defaulted on separate loans.
In the bankruptcy filing, the partnership listed $73.9 million in liabilities and $37.1 million in assets.
Rick Goulart, a spokesman for Cigna Corp., the giant insurance and health-care firm based in Philadelphia, said: "What we hope to do is have the court stay the foreclosure and then consider the reorganization or restructuring of the (partnership) debt, or, if it comes to that, the sale of the hotel."
The 200-investor limited partnership acquired the hotel from Marriott Corp. in 1984 in a deal financed largely by Mercury and several Cigna Corp. investment units based in Bloomfield, Conn.
The hotel has been for sale since early last spring, but the weak real estate market, combined with what some analysts see as an oversupply of hotel rooms near the airport, have stymied the sale.
Some analysts have blamed Marriott Corp. for some of the hotel's financial problems because it built four hotels close to the airport, forcing them to compete with one another and with other airport hotels.
Besides the Irvine Marriott, the Washington-based chain built and still owns or manages the Newport Beach Marriott Hotel and Tennis Club at Newport Center and Marriott Suites hotels in Newport Beach and Costa Mesa.
The Irvine Marriott has been unable to generate enough cash flow to service the partnership's debt, Goulart said.
Federal regulators postponed the foreclosure when they seized Mercury in February but reinstated the proceedings in September, when they closed down the thrift and sold its offices and some assets to Security Pacific Bank.
The loan to Cigna Hotel Associates I was retained by the government as part of the defunct S&L's estate, which is to be liquidated by the Resolution Trust Corp.
In its bankruptcy filing, Cigna Hotel Associates I listed a $6.8-million debt to Marriott Corp.
The group also listed as major creditors--without specifying the amounts owed--the Resolution Trust Corp. as liquidator of the Mercury Savings estate and three Cigna affiliates in Connecticut.