Checking in to Bankruptcy & Workouts: Options for Your Distressed Hotel

By: Robert (Bob) H. Voelker, Joseph J. Wielebinski and Michael P. Gavin

While the recently popular lender/borrower game of "extend and pretend" has allowed lenders and hotel owners to play nice with each other while hotels have faced these unprecedented economic times, this game may be winding down as lenders begin to take a more aggressive stand on loan maturities/defaults. This article provides insights into some of the practical and legal options for the hotel owner when the lender begins to exercise its legal remedies.

First, let's examine some of the cards that the hotel owner-borrower holds. For one thing, troubled hotel loans are more difficult for lenders due to the myriad of management and franchise affiliations, licenses and permits, extensive vendor relationships, marketing efforts, significant workforce involved, etc. These contracts and relationships typically do not factor into the "normal" non-operational real estate workout and/or foreclosure (for example, warehouses or strip retail centers), but are common in hotel ownership and are critical to the value of the hotel asset. In addition, the lender's lien position may be subordinate to the hotel management and franchise agreements, another reason for the lender to compromise and attempt to work with the existing borrower and hotel manager even when the loan is in default.

Workouts & Related Options
Given these unique advantages, what are the possible approaches a hotel owner can take when facing the lender's attempts to collect on the loan or enforce its liens against the property? The most obvious answer is a loan workout/modification/extension. Many industry experts have observed that banks do not want to write down loans because this action requires an increase in their bad debt and capital reserves.

If the owner-borrower can move the lender toward a workout scenario, the first step is normally the negotiation of a pre-workout agreement (PWA). A PWA is an agreement outlining the current situation faced by the parties and the parameters of the parties' respective rights and obligations in attempting to negotiate a consensual resolution. The PWA may be a lender's attempt to protect itself during negotiations of the existing loan. Perhaps such protections are reasonable, but the owner-borrower should not admit any defaults or waive any rights in the PWA. Sometimes lenders will attempt to use the PWA to obtain concessions from the owner-borrower before allowing workout negotiations, and the owner-borrower must decide whether the requested concessions are necessary, prudent or will impair the owner's ability to exercise rights or undertake actions that might be necessary if the workout negotiations fail. ... more

Equipped to Succeed: Recent Asset Purchase Creates Opportunities for Innovative TI Plant

By: Glenn B. Callison and Joseph J. Wielebinski

As seen in Forbes, March 1, 2010

In another successful case for the Insolvency, Restructuring & Creditors' Rights practice group of Munsch Hardt Kopf & Harr, P.C., Texas Instruments Incorporated (TI) was able to take advantage of an opportunity to equip its plant in Richardson, Texas. In September 2009, a U.S. bankruptcy court in Delaware approved TI's purchase of specialized tooling equipment for the production of semiconductor chips from Qimonda Richmond, LLC, a Richmond, Virginia, company that had filed for Chapter 11 bankruptcy protection.

"TI was able to purchase the majority of Qimonda's equipment for $172.5 million," says Munsch Hardt shareholder Joseph J. Wielebinski, who led the Munsch Hardt team that represented TI in its stalking horse bid for Qimonda's assets under Section 363 of the Bankruptcy Code. The purchase will allow TI to commence production at its state-of-the-art manufacturing facility in Richardson, which was built several years ago. This will be the first chip manufacturing plant to use these particular tools to produce analog chips. "TI simultaneously acquired Qimonda's tooling assets as well as tooling owned by several third parties free and clear of all liens, claims and encumbrances," Wielebinski says. ... more