DiamondRock Reaches Settlement on Allerton Bankruptcy
DiamondRock Hospitality Company (NYSE: DRH) today announced that it reached a settlement of the bankruptcy and related litigation involving the Allerton Hotel.
"This settlement allows DiamondRock to receive a meaningful return on its original distressed debt investment in the Allerton Hotel with a combination of a cash payment and restructured mortgage loan totaling $71 million. We look forward to generating a strong cash yield from our investment in the Allerton Hotel mortgage debt. In addition, we are optimistic that the current owners will successfully restore the hotel to its historic place among the hotels on Magnificent Mile," stated Mark W. Brugger, Chief Executive Officer of DiamondRock Hospitality Company.
In exchange for resolving its objection to the plan of reorganization filed by affiliates of Petra Capital Management, DiamondRock will receive a $5 million principal payment and will restructure the debt it currently holds into a $66 million senior mortgage loan with a four-year term (plus a one year extension option), bearing interest at 5.5%. The settlement, which has been approved by the United States Bankruptcy Court in the Northern District of Illinois, is subject to certain closing conditions. If these conditions are not met by January 18, 2013, including the payment of $5 million, then the Allerton Hotel will be sold pursuant to an auction in accordance with the Bankruptcy Code, in which case the Company would have a $71 million claim in the sale process. In 2010 the Company paid approximately $60 million for this distressed debt.
The interest income and legal fees related to the Company's interest in the Allerton hotel have been excluded, and will continue to be excluded, from its reported Adjusted EBITDA and Adjusted FFO during 2012. As of September 7, 2012, the Company's net book value of the mortgage note receivable was approximately $54.2 million. The Company intends to include the interest income from the note in the Company's reported Adjusted EBITDA and Adjusted FFO starting on January 1, 2013.
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