Merrill quits as adviser to reorganizing Marriott

November 18, 1992|By Bloomberg Business News

NEW YORK -- Merrill Lynch & Co., facing increasing pressure from institutional investors, resigned yesterday as an adviser for Marriott Corp.'s controversial restructuring plan.

Merrill denied it quit because of pressure from large bondholders, who lost millions of dollars after Marriott announced its plans Oct. 5. "The suggestion [that Merrill bowed to pressure from institutions] is false," a spokeswoman for Merrill said. Merrill declined further comment citing its "policy of not commenting on client matters."

"This is just an indication of the pressure that's building on Marriott," said Lawrence Kill, partner at Anderson Kill Olick & Oshinsky, a law firm advising bondholders seeking to halt Marriott's plan. "It's very unusual for [investment bankers] to walk away from clients."

Marriott, in a statement released late yesterday, said "it has reached agreement with Merrill Lynch to terminate Merrill Lynch's engagement with respect to Marriott's proposed special dividend." A Marriott spokesman said the agreement was "mutual." However, a person familiar with the transaction said Merrill quit.

Marriott said it planned to proceed with the restructuring and will hire a new investment banking adviser. Marriott's remaining advisers are James D. Wolfensohn Inc., Houlihan, Lokey, Howard & Zukin Inc. and Latham & Watkins. Officials at Wolfensohn and Houlihan, Lokey were not immediately available to comment.

Marriott, in a move designed to benefit the hotelier's shareholders, told investors last month that it will separate its lucrative hotel management business from its money-losing real estate, airport and toll road concessions. Analysts said the result would leave Marriott International Inc. free of debt and Host Marriott with $2.9 billion of debt.

Analysts said Marriott might have to sell as much as $1 billion of its hotel properties to keep the debt-laden company afloat.

"I think [Host Marriott] is a troubled company," said Stephen Cooper, a partner at Anderson Kill. "It is highly unlikely they'll be able to service their debt for the long term," he said. "There is an argument here that Host Marriott is practically insolvent."

Host Marriott will raise at least $500 million and as much as $1 billion through hotel sales and other financial transactions in the next five years, according to Mike Paasche and Larry Klatzkin, junk-bond analysts at Prudential Securities. That may be difficult because hotels are selling for 30 percent to 50 percent less than they did a few years ago.

"It's certainly a buyer's market," said Robert Souers, a Marriott spokesman. Marriott doesn't "anticipate having to sell [assets] at prices that would not reflect their true value." Marriott officials declined to say how much real estate they may sell in the next five years.

While Marriott's shares soared, its bonds declined as much as $300 per $1,000 face amount, wiping about $360 million from the corporate bond market last month.

Lehman Brothers estimates that the Marriott bondholder debacle contributed to $11 billion of losses in the corporate bond market because investors remain jittery that other companies may do the same thing.

The reorganization plan already has prompted Thomas Piper, a Harvard professor and 10-year member of Marriott's board of directors, to resign in protest, bondholders to sue Marriott for alleged fraud, and credit-rating agencies to turn Marriott's bonds into high-risk junk.

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