Cerberus Capital Management and Chatham Lodging Trust have pulled out of the deal to buy the assets of 66 hotels from bankrupt lodging company Innkeepers USA Trust.

Chatham announced the termination today, saying that it and Cerberus had rescinded their offer “as a result of the occurrence of a condition, change or development that could reasonably be expected to have a material adverse effect on Innkeepers’ business, assets, liabilities, operations, condition or prospects.” A Chatham representative was not immediately available for comment.

The plan called for a joint venture between Cerberus and Chatham Lodging to pay $1.1 billion for the equity in entities that own and operate 66 hotels owned by Innkeepers. Chatham also agreed to purchase, for $195 million, five of the company’s hotels that serve as collateral for loan trusts serviced by LNR Partners. A judge approved the plan on June 29.

All the company’s secured creditors and 90% of its unsecured creditors support the restructuring plan. The company filed for bankruptcy in July 2010.

Innkeepers filed for bankruptcy in July 2010, citing a heavy debt load that hurt its ability to maintain its facilities. It was acquired by Apollo Global Management in 2007 for $1.5 billion.

Barclays Capital analysts on Aug. 18 previously discussed the possibility of the companies terminating the prior agreement. 

They still think that the CMBS loss severity will probably be higher after the resolution of the Innkeepers loan securitized in LBUBS 2007-C6/C7 deals. 

Chatham's decision to terminate this commitment, they said, will not affect separate purchase agreement that closed on July 14 related to five Innkeepers hotels.

For ASR's coverage of the transaction, please clicke here.

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