Eagle Hospitality Trust announced on Tuesday that a distressed-debt specialist had entered into a preliminary “stalking horse” agreement with entities holding 15 of its US hotel properties as the SGX-listed trust seeks an orderly disposition of the assets, which are under Chapter 11 bankruptcy protection.
The stalking-horse bidder is an affiliate of US-based Monarch Alternative Capital, which has agreed to buy the 15 hotels for an aggregate consideration of $470 million.
“The Stalking Horse Bidder’s bid of a consideration of US$470 million represents the highest price achieved for the Chapter 11 Properties following an extensive solicitation process with bidders globally and sets the ‘floor price’ for the Second Bid Round and the Auction, and prevents other potential bidders from underbidding the purchase price,” EHT declared in a statement to the stock exchange.
The preliminary offer for the hotels, which represent the bulk of EHT’s 18-asset portfolio, marks a step towards liquidation of the listed trust after a January bankruptcy filing followed months of defaults and regulatory inquiries.
Properties in Harness
In a stalking-horse bid, the seller and the prospective buyer agree on a lower-limit initial bid to prevent a third party from underbidding the purchase price.
“It is common practice in the United States for an entity seeking to sell assets in a Chapter 11 process to identify and enter into a stalking horse agreement for the sale of its asset(s), and to subsequently solicit higher or otherwise better offers with the stalking horse’s bid as the floor price,” EHT said in a filing with the Singapore Exchange.
The 15 properties covered by the stalking-horse deal include Holiday Inns in Anaheim and San Mateo, California, as well as in Denver. There are also Sheratons in San Jose and Pasadena, a more upscale Westin hotel in Sacramento, and the Queen Mary moored at Long Beach near Los Angeles.
The three properties not named in the stalking-horse agreement are the Renaissance Woodbridge in New Jersey and two Texas hotels, the Crowne Plaza Dallas Near Galleria-Addison and the Hilton Houston Galleria Area.
If Monarch’s bid for the 15 properties remains the highest after the second bidding round, the firm will purchase the properties on an as-is and where-is basis. If the second round draws a higher bid, the entities controlling the 15 properties will compensate Monarch with a break-up fee equal to 2 percent of the stalking-horse bid, plus expenses incurred in relation to the contemplated transactions of up to $3 million.
The parties hope to have the sale approved in the US Bankruptcy Court by the end of May. EHT said the floor price in the stalking-horse agreement is unlikely to generate any residual value to be distributed to the REIT’s stapled security holders.
Sending Out an SOS
In January, EHT revealed that 27 entities linked to hotels in its portfolio had filed for bankruptcy in the US.
With Chapter 11 protection secured, EHT’s bankrupt entities signed an agreement allowing them to secure up to $100 million in financing from Monarch, part of which has been used to fund critical operating expenses for 12 hotels that remain closed, EHT said in the Tuesday filing.
While the COVID-19 pandemic has thwarted efforts to sell hotel properties, EHT, which went public on the Singapore Exchange in May 2019, was already in breach of its financial covenants by November 2019, according to documents filed by Singaporean authorities.
Last October, six directors and former directors of EHT’s manager were arrested in Singapore in connection with a government investigation. Later that same month, the city-state’s central bank moved to remove the trust’s manager.