John Q. Hammons Hotels filed for bankruptcy protection on Sunday in Kansas City, Missouri, just weeks before the start of a trial to determine if the company founded by the late legendary hoteliers must sell its hotels.
More than 70 affiliates owned by the John Q. Hammons trust filed for protection. The companies listed assets and debts each of more than US$1 billion, The Wall Street Journal reported. A trust, officially the revocable Trust of John Q. Hammons, that owns the 35 hotels, also filed for Chapter 11 protection. The bankruptcy petition was signed by trustees Jacqueline Dowdy, CEO of the hotel company, and Greggory Groves, general counsel.
The bankruptcy filing, according to The Journal report, involves a group of hotels that Hammons retained ownership of after the 2005 buyout of his hotel business by Jonathan Eilian, the former managing director of private-equity giant Starwood Capital Group. At the time, Hammons received an equity interest in the acquiring company—a partnership with Eilian—as well as preferred stock valued at US$328 million and some US$300 million in loans.
As part of the deal, Eilian received right of first refusal to buy the 35 Hammons-owned hotels that weren’t included in the 2005 buyout. Those are the hotels owned by the trust that are part of Sunday’s chapter 11 filing.
After Hammons death and the liquidation of a partnership between Hammon and Eilian, a Delaware court ruled the right of first refusal was valid and the trust was required to sell the hotels to Eilian. In a pretrial hearing last fall, the Delaware’s Court of Chancery said the Hammons trust and companies were “serial and ongoing breachers“ that “have made zero efforts” to sell the hotels.
At the trial slated to begin July 26 in Wilmington, Eilian was asking the court to force the trust to sell the 35 remaining hotels to him.
The bankruptcy filing, at least temporarily, puts the brakes on the Delaware litigation. However, last fall, the Delaware court issued a so-called status quo order barring the Hammons trust from taking any action outside of “the ordinary course of business” with respect to the hotels. It remains to be seen if the bankruptcy filings violate the Delaware court order.