MSR Hotels files bankruptcy to sell assets, cites Five Mile complaint

By Caroline Salls

Pittsburgh, May 9 - MSR Hotels & Resorts, Inc. filed Chapter 11 bankruptcy Wednesday in the U.S. Bankruptcy Court for the Southern District of New York to sell its remaining assets and wind down its estate, according to court documents.

MSR Hotels secretary and treasurer Daniel Kamensky said in a statement filed with the court that the bankruptcy filing was necessary because Five Mile Capital SPE B LLC "recently filed baseless claims against the REIT and its directors that have derailed what should have been an orderly sale and wind-down process."

"Five Mile's latest allegations are not only a continuation of its scorched-earth tactics from the REIT subsidiaries' Chapter 11 cases, but directly offend the court's prior findings," Kamensky said.

"Now, the REIT seeks the protection of Chapter 11 to effectuate a sale and plan process, free and clear of the Five Mile litigation."

As previously reported, some of MSR Hotel's non-real estate investment trust (REIT) subsidiaries and affiliates filed for bankruptcy in 2011.

Kamensky said confirmation of the non-REIT debtors' Chapter 11 plan was highly contentious and required the bankruptcy court to confirm the plan over the objections of both Five Mile and the Internal Revenue Service.

The non-REIT debtors' plan was confirmed on Feb. 22 and took effect on Feb. 28.

Since the effective date of the non-REIT debtors' plan, Kamensky said MSR Hotels continued to consider its options to monetize the value of the Resort Marks and finalize the REIT's wind-down, holding talks on the potential sale of the resort and settlement of claims.

Five Mile complaint

However, Kamensky said these efforts suffered a setback on April 9 when Five Mile filed a complaint against the REIT and some of its current and former directors, asserting direct and derivative claims on account of their actions and omissions in connection with the non-REIT debtors' plan and resorts and collaterally attacking the court's previous rulings.

"At its core, Five Mile's complaint advances the notion that the REIT should have sought to detract from the value of its own assets - the resorts - to steal value in direct contravention of every applicable legal document and principle," Kamensky said.

"But the fact that the resort marks were pledged to the mortgage lender made this impossible, and would have been in direct contravention to the interests of Five Mile and the ongoing efforts to pay claims in full in those Chapter 11 cases."

As a result of the Five Mile complaint, Kamensky said the MSR Hotels' ability to sell the resorts in an out-of-court process has been constrained.

In connection with the bankruptcy filing, MSR Hotels' stockholder and board of directors approved a commitment for $2 million in initial debtor-in-possession financing.

No other details of the DIP financing have been filed.

Debt details

According to court documents, MSR had $785,419 in assets and $59.25 million in debt as of March 30.

The company listed no unsecured creditors with claims of $1 million or more.

The company is represented by Kirkland & Ellis, LLP.

MSR Hotels is a New York-based real estate investment trust. Its Chapter 11 case number is 13-11512.

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