First Day Declaration
Hospitality Investors Trust Operating Partnership, L.P.
, a New York-based publicly registered, non-traded real estate investment trust focused on strategically-located hotel properties throughout the United States, filed for chapter 11 protection today in the Bankruptcy Court for the District of Delaware, along with affiliate Hospitality Investors Trust, Inc. The company reports $1 billion to $10 billion in both assets and liabilities. The debtors are represented by Proskauer Rose and Potter Anderson & Corroon as co-counsel and Jefferies as investment banker and financial advisor. Morrison & Foerster is serving as bankruptcy counsel to the debtors' independent directors. Epiq is the claims agent. The case number is 21-10830.
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The debtors say that they intend to implement a restructuring through a prepackaged plan with the support of plan sponsor Brookfield Strategic Real Estate Partners II Hospitality REIT II LLC (“who holds all of the interests in the Existing Preferred Equity Interests, which is the fulcrum security in the Debtors’ capital structure”). The plan contemplates a restructuring that would “(a) cancel the Debtors’ Existing Preferred Equity Interests, (b) issue 100% of new common equity interests in Reorganized HIT to the Plan Sponsor, (c) provide the Debtors with up to $65 million in debtor in possession financing to fund working capital needs and anticipated transaction fees and expenses, and an exit facility effective upon the Effective Date (the ‘Exit Facility’) with a maximum revolving drawn principal amount of (i) $25 million, plus (ii) the DIP Facility Undrawn Amount to fund go-forward working capital needs, (d) leave unimpaired and provide for payment in the ordinary course for all of the Company’s employees, vendors, lenders, franchisors, and hotel management companies.”
According to the first day declaration of Hospitality Investors Trust CFO and treasurer Bruce Riggins, the debtors “do not have any outstanding funded debt, but have approximately $1.3 billion in unsecured obligations, most of which comprises contingent unsecured claims on account of the Debtors’ guaranties of the secured debt of the Non-Debtor Subsidiaries.” In addition to the contingent, unsecured obligations outstanding under the guaranty claims, the debtors owe “(a) approximately $698,120 in rent obligations owed to the Debtors’ landlords, and (b) approximately $151,000 in unpaid trade and other ordinary course obligations, in each case, as of the Petition Date.”
The proposed plan treatment includes: “Each holder of a DIP Claim (excluding, for the avoidance of doubt, any Claims in respect of the DIP Facility Undrawn Amount) will receive in exchange for its claim its Pro Rata Share, together with the holders of Existing Preferred Equity Interests, of 100% of the New HIT Common Equity Interests (subject to dilution for any applicable management or employee incentive plan adopted by the Reorganized Debtors after the Effective Date). Similarly, each holder of Existing HIT Preferred Interests and Existing HITOP Preferred Interests will receive, in exchange for its Interest, its Pro Rata Share, together with the holders of DIP Claims (excluding, for the avoidance of doubt, any Claims in respect of the DIP Facility Undrawn Amount), of 100% of the New HIT Common Equity Interests. Additionally, 2% of Existing HITOP Preferred Interests shall be canceled, and the holder of such Existing HITOP Preferred Interests shall receive, in exchange for its Interest, its Pro Rata Share of 2% of New HITOP Interests.” General unsecured creditors would be paid in full. “Holders of the Existing HIT Common Equity Interests, who would otherwise be out of the money absent the Plan, will each receive one CVR in respect of each share of the Allowed Existing HIT Common Equity Interests outstanding immediately prior to the Effective Date,” the declaration adds. The debtors seek a combined plan and disclosure statement hearing within 30 days.
The first day declaration notes the “devastating impact” of the Covid-19 pandemic on the company’s hotel business and liquidity. The debtors’ cash on hand decreased from $70.3 million at the start of 2020 to $14.6 million by the end of the year, and to $8.7 million by the end of the first quarter of 2021, and as of the petition date, the debtors have “only approximately $3.5 million in cash on hand.”
The debtors' corporate organizational structure is shown below:
Reorg First Day will provide a full summary once the first day briefing is complete.