Jacquie Dowdy: Financial restructuring will enable JQH to navigate ongoing litigation.
Staving off ongoing legal battles in two states, John Q. Hammons Hotels & Resorts and over 70 affiliates, including The Revocable Trust of John Q. Hammons, filed for reorganization under Chapter 11 bankruptcy protection three years after its founder’s death.
However, company officials say JQH is in good financial shape. Documents filed with the U.S. Bankruptcy Court in Kansas City, Kan., show assets and liabilities among the companies as being roughly equal at more than $1 billion a piece, save John Q. Hammons 2015 Loan Holdings LLC, reporting assets in the $50 million-$100 million range against liabilities of $10 million-$50 million.
According to the bankruptcy declaration, the Chapter 11 status provides JQH and its affiliates a “breathing spell” to restructure. On June 28, a bankruptcy judge allowed the company to continue its operations with a hearing date set for July 15, according to court documents.
JQH Senior Vice President and General Counsel Gregg Groves declined to issue a timeline for the companies’ restructuring efforts during a June 27 news conference, adding JQH would seek an investment adviser within the next three to four weeks to assist with the process.
“While we anticipate hiring investment advisers or other outside parties to assist in the restructuring process, we anticipate we will continue to be financially sound,” Groves said in an email, noting the restructuring process also would place on hold any future developments. “We will continue to consider all of our options and will not restrict our advisers to any particular options.”
Possible next steps listed in the declaration include restructuring the JQH companies “in an organized fashion to the highest bidder” and potentially refinancing loans. A JQH spokeswoman said the companies would not be sold at auction.
Business as usual
With JQH operations expected to continue as usual, the June 26 filing effectively halts pending litigation from Jonathan Eilian, a former investor whose company JD Holdings LLC in 2005 helped privatize hotelier John Q. Hammons’ once publicly traded company.
JQH’s filing comes one month before the next scheduled court date in a Delaware trial to determine whether JD Holdings could purchase JQH’s 35 hotels. Based on the 2005 agreement, Eilian’s company had first right of refusal on the additional properties developed by Hammons outside those governed in the agreement.
Groves contended that such a sale was contingent on the company receiving $335 million owed for Hammons’ stock when the company was privatized.
“The right of first refusal said we would have to sell our 35 hotels if two things happen: one was if we received the $335 million – we never did. The other was if we received a permitted disposition by Mr. Hammons of his (preferred equity interest),” Groves said.
Hammons received PEI valued at $335 million as a result of not being paid cash for his class B shares, but instead becoming a 2 percent partner with Eilian on the 43 hotels that went public and no longer are managed by JQH. “I will tell you the partnership never paid that $335 million in PEI,” Groves said.
Legal quagmire
According to a declaration filed by Groves, without the stay provided by the bankruptcy filing, the “all-consuming” litigation JQH faces could have resulted in a discounted sale of assets to Eilian, with the JQH companies financing 22.5 percent.
Such an order from the Delaware court would likely sap JQH of the finances to potentially pay a multimillion-dollar judgment, which JQH faces in the Circuit Court of Cook County in Illinois. As of December 2015, SFI Belmont LLC had filed motions in a suit begun August 2013 seeking a $148 million judgment. SFI is a subsidiary of iStar Financial Inc., which was involved in Eilian’s extension of a $300 million line of credit to John Q. Hammons Hotels Development LLC, $275 million of which came from Atrium Lendco LLC as part of the 2005 agreement. The $148 million sought is the principal amount of the Atrium loan.
Prior to JQH’s bankruptcy filing, additional motions in the trial would have come before the Illinois court June 28. With the Delaware and Illinois suits stayed, Groves said during the news conference it would be up to the bankruptcy court to determine whether those proceedings would continue.
Groves, attorney Timothy Patenode, who represented SFI Belmont’s suit and Jed Schwartz, who represented JD Holdings LLC’s, separately declined to comment on the pending cases in Delaware and Illinois.
During a bankruptcy hearing held June 28, Schwartz, speaking on behalf of JD Holdings, said the JQH filing was not motivated by financial inability to meet obligations to creditors but rather to circumvent the Delaware court date set for July.
“They’ve continued to make their payments, they’ve continued to do things like use the private plane that the company owns to get around,” Schwartz said of JQH. “The decision to file was motivated so that they could avoid the trial that has been scheduled.”
What’s next?
According to JQH CEO Jacquie Dowdy, the company’s bankruptcy filing stems in part from disagreements between Eilian and the JQH companies over that 2005 transaction.
“While the JQH family of companies is finically sound and performing well, financial restructuring will enable the companies and their advisers to better navigate the litigious environment that has encumbered our companies the past several years,” Dowdy said, reading from a prepared statement during the news conference.
Groves said there are no plans to close any of the 35 hotels in JQH’s portfolio and that the company’s more than 4,000 employees would be unaffected by the filing.
“We’re not filing bankruptcy because we can’t afford to pay our bills, and our employees can expect to receive their payments and benefits,” Groves said.
Other properties bearing Hammons’ name, such as Hammons Tower owned by the John Q. Hammons Trust, are likewise unaffected by the reorganization.
Maintaining the JQH companies are financially sound but declining to identify any specific philanthropic commitments, Groves noted all but one beneficiary of Hammons’ trust had been paid in full.
“That one is being paid currently and we anticipate that it will continue to be,” Groves said. “It was set up in his trust as ongoing payments, the trust has recognized those payments and we can expect to continue to recognize those payments.”
One commitment currently in question is Missouri State University’s JQH Arena. Although Groves said the arena is not owned by JQH or affiliates and therefore also would not be affected by the restructuring, according to Springfield Business Journal archives, MSU does receive biannual payments from Hammons’ trust to fulfill a $30 million pledge made by the hotelier in 2006. MSU officials declined to comment on whether the arena was a beneficiary of the trust or how much money had been received from it.
Web Producer Geoff Pickle contributed.
