Marriott creditors combine claims in class action suit

December 05, 1992|By Bloomberg Business News

Marriott Corp. bondholders, seeking to block the company' restructuring plan, have combined previously filed claims in a class action lawsuit against the hotel chain and its executives and have named Merrill Lynch & Co. as a defendant.

In a separate action, a group of institutional investors who own more than $120 million of the hotel chain's bonds increased their claims.

The original lawsuits were filed in October after Marriott announced that it would split into two companies.

Previous suits named only the hotel chain and its executives. Lawyers for the bondholders in the class action cited Merrill Lynch as a defendant because, they assert, Merrill violated securities laws when it underwrote bonds for Marriott last year.

"Merrill Lynch knew or should have known about the proposed restructuring when it underwrote bonds for Marriott on July 11, 1991," said Richard Meyer, a lawyer for the plaintiffs. Merrill, Mr. Meyer asserted, "violated securities laws by not informing investors" about the planned restructuring.

The class action suit, filed in U.S. District Court in Baltimore, seeks an injunction to block the restructuring. The suit also seeks financial damages from losses to investors after Marriott announced its plan.

Merrill Lynch, which quit last month as adviser to Marriott on its restructuring amid protests from customers, said yesterday that saw no reason why it should be named in the suit.

"We are not aware that there's any basis upon which Merrill Lynch could be named as a defendant in this litigation," said a spokeswoman for Merrill Lynch. "However, we are not in a position to comment until we have had an opportunity to review the entire complaint."

The charges filed by the group of institutional bondholders, led VTC by PPM America Inc., allege that Marriott committed securities fraud when it sold $400 million of bonds in April and May. The group expanded the claim yesterday to include purchases of other Marriott bonds in 1992, added to the list of plaintiffs and expanded the evidence against the hotel company.

The institutions assert that Marriott knew about its restructuring plan when it sold bonds in the spring.

"Marriott had a duty to disclose that the restructuring was in the works," said Lawrence Kill, an attorney for the institutions, led by PPM, that own Marriott bonds. "We are trying to show that the restructuring should have been disclosed at an earlier date, and that these plaintiffs wouldn't have purchased the bonds had they known."

L He estimated damages at between $25 million and $35 million.

In its amended suit, the PPM group uses statements from Marriott's management as evidence of the preparation that went into the restructuring plan. Stephen Bollenbach, Marriott's chief financial officer, was quoted in the suit as saying on Oct. 26 that "this transaction was not something that was a bold out of the blue."

Marriott "agonized over this for thousands and thousands of hours with various professionals," he is quoted as saying.

On Oct. 5, the hotel company said it would split in two, leaving Marriott International Inc., including the company's lodging, food, facilities management and senior living service operations, with a clean balance sheet. A weaker concern, Host Marriott Corp., consisting of real estate and airport and railroad concessions, would be saddled with $2.9 billion of the company's debt.

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