Lehman March 13

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Investcorp International Realty Inc.

1. Lehman Fights For Stake In $63M Foreclosed Hotel Loan

   Mar 12, 2015 | Law360

   By Stewart Bishop
   
   
   Lehman Brothers Holdings Inc. on Thursday asked a New York state judge to find that an Investcorp International Realty Inc. affiliate breached a lending agreement for a foreclosed $62.5 million mezzanine loan to a hotel operator, arguing that a default on the loan didn’t erase its rights under the contract.

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Client Attorney Privileged/Attorney Work Product/At Request of Counsel

Investcorp International Realty Inc.

1. Lehman Fights For Stake In $63M Foreclosed Hotel Loan

   Mar 12, 2015 | Law360

   By Stewart Bishop

    Lehman Brothers Holdings Inc. on Thursday asked a New York state judge to find that an Investcorp International Realty Inc. affiliate breached a lending agreement for a foreclosed $62.5 million mezzanine loan to a hotel operator, arguing that a default on the loan didn’t erase its rights under the contract.
   
   The defunct investment bank brought the suit in 2012, saying IVC WH HG II LLC failed to honor Lehman’s junior stake in the loan, after the hotel operator defaulted. IVC did not set up a joint operating company to house the joint interests, as required by the agreement between the two lenders, when it foreclosed on the loan, and instead took the collateral for itself.
   
   Lehman holds 30.9 percent of the loan and IVC, the senior loan participant, holds 69.1 percent, according to the complaint.
   
   During oral arguments on competing summary judgment motions before New York Supreme Court Judge Marcy S. Friedman in Manhattan, an attorney for Lehman said the plain language of the lending agreement said that if IVC takes control of the underlying collateral — nine different hotel properties — the senior lender is required to establish a Delaware limited liability company to hold the assets.
   
   “In violation of that agreement, the senior participant took title to the equity interests alone,” Rebecca L. Fine of Schindler Cohen & Hochman LLP said.
   
   Fine said contract language is clear: The new controlling entity for the hotels was designed to replicate the economic interests outlined in the underlying lending agreement. She said Lehman was entitled to $12 million as well as 30.9 percent of any residual profits from the sale of the hotels.
   
   IVC maintained Lehman’s junior interest in the loan had been worthless from its inception, and Lehman only entered into the deal a few months before filing for bankruptcy in 2008, in an effort to sell off its outsized exposure to “precarious commercial real estate loans” and clean up its balance sheet.
   
   IVC attorney Partha P. Chattoraj of Allegaert Berger & Vogel LLP told Judge Friedman that the provision in the lending agreement that called for setting up a joint entity to hold the hotels was never triggered, because the price of the hotel portfolio that IVC paid at auction was significantly less that the outstanding principal balance of IVC’s senior interest in the loan.
   
   “When there is an event of default, the senior participant no longer has an obligation to treat the loan in an equal way,” Chattoraj said. “Instead, the senior participant is entitled to take action on its own behalf.”
   
   Chattoraj said Lehman had other options if it wanted to preserve its interest in the loan, such as a buyout provision, which allows for Lehman to forestall an enforcement action by making payments on the loan.
   
   Judge Friedman said she would reserve decision on the matter.
   
   The loan was jointly made in 2007 to an affiliate of W2005 WYN Hotels LP, which court and property records show owns dozens of hotels nationwide.
   
   Lehman Brothers said it contacted IVC after the foreclosure about setting up an operating entity to hold the joint loan interests. IVC responded that Lehman's junior interest "had (and has) no value and therefore forming an owning entity to reflect no economic interest is not required," according to the complaint...
   
   For full story:

   http://www.law360.com/articles/630801/lehman-fights-for-stake-in-63m-foreclosed-hotel-loan
   
   

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