The Chapter 11 bankruptcy filing by John Q. Hammons Hotels & Resorts and more than 70 affiliates has come under fire from a law firm representing former JQH investor Jonathan Eilian.
Jed Schwartz, an attorney with New York-based Milbank, Tweed, Hadley & McCloy LLP representing Eilian’s JD Holdings LLC, filed a motion July 25 with the U.S. Bankruptcy Court in Kansas City, Kan., requesting the court dismiss JQH’s filing.
The motion also asks the court to abstain from hearing the case and lift the automatic stay in a Delaware lawsuit originally brought against JQH by JD Holdings in 2012.
Schwartz declined to make additional comment.
JQH’s bankruptcy filing came one month before a scheduled trial date in Delaware Chancery Court to determine if JD Holdings could purchase JQH’s portfolio of 35 hotels, based on a 2005 agreement between investor Eilian and hotelier John Q. Hammons. JQH also faces a suit in Illinois filed by a company tied to a $300 million line of credit extended by Eilian to Hammons.
JQH’s Chapter 11 filing enacted an automatic stay in both trials, effectively putting them in limbo pending moves in bankruptcy court.
The July 25 filing asserts JQH lacked the authorization to and is not entitled to file for bankruptcy reorganization, stating the company’s motivation for doing so “was to avoid the upcoming trial in the Delaware litigation, and not to reorganize their debts for the benefit of creditors.”
The motion cites a JQH news conference held June 27, where CEO Jacquie Dowdy referred to the company and its affiliates as financially stable.
At the conference, company officials said the restructuring was enacted to create a “breathing spell,” allowing JQH to halt and work through the ongoing litigation.
JQH officials could not reached for comment by press time.
The filing last week arrived the same day as the first in a series of monthly omnibus hearings, described in court documents as nonevidentiary proceedings, scheduled through Dec. 12 to address all of the filings in the bankruptcy case concerning JQH.
Court documents from a July 15 status conference show JQH is allowed to continue paying critical vendors and using cash collateral through Oct. 1, with another status conference set for Sept. 26. A meeting of JQH creditors is scheduled Aug. 1 in the Kansas City, Kan., court.
Loan activity
Also keeping an eye on the bankruptcy case is New York-based credit rater Kroll Bond Rating Agency Inc.
Following JQH’s filing, the agency announced June 30 it had identified four KBRA-rated loans related to JQH’s hotel portfolio out of 10 commercial mortgage-backed securities that were impacted by the filing.
The agency said the 10 loans have a total balance of $690 million.
KBRA Managing Director Troy Doll said JQH is current on all payments, but the agency would closely monitor its rated transactions, including the four loans totaling $194.2 million as the bankruptcy case proceeds.
“They are receiving payments as scheduled and the properties are performing as expected,” Doll said. “There is not a lack of cash flow for the properties to pay their mortgage, so we expect them to continue to make their monthly payments barring any dislocations, possibly caused by the bankruptcy or possibly caused by management.
“Right now, we don’t foresee it being a problem.”
A bond rating is an analysis of the borrower’s ability to pay down the bond while maintaining liquidity, and it serves as an indicator of whether the bond is investment or noninvestment grade. Borrowers must apply with a provider to receive a credit rating on a bond.
According to a July 6 news release, the agency received notice from loan servicer Wells Fargo Commercial Mortgage Trust that one of the four KBRA-rated loans – $44.95 million related to Chateau on the Lake in Branson – had been transferred to Midland Loan Services as a special servicer due to the Chapter 11 filing.
“When there is a bankruptcy of the sponsor, a loan will transfer to special servicing, meaning it transfers to a service who is handling troubled loans, for lack of a better term,” Doll said, adding the agency had not received such notices for any other loans.
KBRA expects the other loans will transfer to special services as a result of the bankruptcy reorganization.
“Really, the risk is with the sponsor,” Doll said.
“Since they are all single-purpose entities, hopefully it won’t trickle down to the borrower.”
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