Eagle Hospitality Trust entities' sale of properties gets opening bid

SOME entities of Eagle Hospitality Trust (EHT) have entered into a stalking-horse agreement with a bidder, as they seek to sell their properties as part of Chapter 11 bankruptcy proceedings in the US.

Fifteen out of 18 of the properties in EHT's portfolio that are owned by the Chapter 11 entities are up for sale.

A "stalking-horse" agreement effectively sets an opening price or "price floor" to protect the company selling the assets from low bids. Other potential buyers would have to submit higher or otherwise better competing bids.

The stalking-horse bidder in EHT's case is Madison Phoenix LLC, an affiliate of Monarch Alternative Capital LP, which had earlier extended a debtor-in-possession (DIP) credit facility of up to US$100 million to the Chapter 11 entities.

Under the agreement, Madison Phoenix has agreed to purchase the 15 properties for US$470 million, subject to the terms and conditions.

Still, according to EHT's bourse filing on Tuesday, based on the debt profile of the Chapter 11 Entities, the "floor price" in the stalking-horse agreement is "unlikely" to generate any residual value to be distributed to stapled security holders, including the relevant stapled security holders' entitlement to the distribution of 3.478 US cents per stapled security as declared on Feb 17, 2020.

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And, even while the entry into the stalking-horse agreement will be followed by a second bid round and auction to solicit higher or better bids and allow for any restructuring and/or recapitalisation alternatives to be put forward, stapled security holders should note that there is "no certainty or assurance" that any such other proposals will materialise.

The Chapter 11 entities and their professional advisors had determined Madison Phoenix the "best positioned bidder", as it had submitted a bid with a purchase consideration "superior to all the other proposals received to date".

The entities have so far received 29 proposals, "nearly all" of which relate to the purchase of all or a subset of the properties. This is after Moelis, the financial advisor, contacted more than 180 qualified parties to solicit their interest in submitting proposals for the restructuring and recapitalisation of EHT and/or the purchase of one or more of the properties.

Proceeds from the sale of the properties would first be used to cover all costs of administration of the Chapter 11 filing and the DIP financing facility. Next, all pre-petition creditors of the Chapter 11 entities will be paid in the order of priority of their respective rights.