Cerberus Capital’s reported delay of its purchase of some Innkeepers USA assets is a sign of uncertainty in the market, Standard & Poor's said this morning. This is viewed as a negative for CMBS credit.
The U.S. Bankruptcy Court approved both the restructuring and sale of the Innkeepers portfolio in late June. This was done after a consortium of Cerberus and Chatham Lodging Trust won a bankruptcy auction in May to purchase 64 of Inkeepers' hotels worth $1.12 billion. The deal comprised $400.5 million in cash and an assumed $723.8 million in mortgage debt, published reports indicated.
Barclays Capital analysts cited the commitment letter filed with the bankruptcy court as saying that Cerberus was set to give $363.5 million in cash in return for a 90.8% interest in the new Innkeepers entity. Meanwhile, Chatham is supposed to put up $37 million in cash for the other 9.2%.
Analysts said that although it is unknown what made Cerberus put off closing, it will likely invoke a clause that allows a termination of the deal if there has been a "change that has a material adverse effect on the use, value or condition of the debtors."
Given the recent disappointing economic data, Barclays analysts suggested that Cerberus might have lowered its projections for the entire lodging sector and Innkeepers specifically.
"It is too early to determine whether Cerberus's decision is a negotiation strategy or its opinion of Innkeepers' valuation has changed over the prior weeks," Barclays analysts noted.
Cerberus might, in any case, propose a lower offer for the portfolio or decide to forgo the transaction altogether, which could possibly make the severities on the securitized trusts rise, analysts said.
They said that even if the second highest bidder decides to renew its commitment, its valuation will probably be adjusted accordingly, which also increases the potential severity.
According to them, the limited liability company agreement between Cerberus and Chatham that sets up the acquiring entity specifies that if Cerberus is not able to put up the initial contribution, Chatham might choose to enforce the commitment.
However, Chatham cannot increase its share of the entity by placing more equity. The bankruptcy court order stated that if the deal does not close by Sept. 15, the order will be automatically revoked.
Meanwhile, the CMBS exposure to Innkeepers is limited to two deals — LBUBS 2007-C6 and C7 — Trepp reported.