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Cerberus, Chatham end deal to buy 64 hotels from Inkeepers USA

August 22, 2011|Reuters

Cerberus Capital Management and Chatham Lodging Trust ended their $1.12-billion agreement to buy 64 hotels owned by the bankrupt Innkeepers USA Trust.

In a joint statement Monday, Cerberus and Chatham said a "material adverse" change had taken place since the May 16 agreement, entitling them to withdraw. Neither specified whether the change related to the marketplace or to Innkeepers itself.

Material adverse clauses let buyers pull out of deals in cases of changes to the market or the purchased company.

In recent weeks, stock markets have slid, credit conditions have tightened and high-yield bond spreads have widened amid concern about the health of economies worldwide. Hotels may also be hurt in any economic slowdown if consumers reduce discretionary spending and companies cut business travel.

Lodging is "not the place to be in a downturn," Barclays Capital said in an Aug. 19 report.

About 63% of the purchase price — roughly $700 million — would have been financed with debt.

Although that ratio is "lower than average," it still made the deal vulnerable to economic fluctuations, said Patrick Scholes, a lodging and gaming analyst with FBR Capital Markets.

Scholes said last week that Chatham, a real estate investment trust, may resurrect the deal with another partner to replace Cerberus, a private equity firm.

Innkeepers did not immediately respond to requests for comment. Spokesmen for Chatham and Cerberus declined to comment.

Innkeepers operates hotels under the Hilton, Hyatt and Marriott brands. It filed for bankruptcy in July 2010 with $1.29 billion in secured debt.

Cerberus and Chatham had won a May auction for the 64 hotels.

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