Bondholders get OK to sue Marriott

February 12, 1993|By David Conn | David Conn,Staff Writer

A federal judge gave bondholders of Marriott Corp. the right yesterday to pursue their lawsuit aimed at blocking the Bethesda-based hospitality company's restructuring plan, and

scheduled a hearing in two months on Marriott's motion to dismiss the case.

The hearing before U.S. District Judge Alexander Harvey was the first time both sides in the case appeared in court since they agreed in December to talk over Marriott's controversial plan to split itself into two companies. The plan, critics said, would benefit stockholders at the expense of bondholders.

Some of the lawyers involved in the case indicated that negotiations continue between the two sides. But the hearing made clear that the issues the case has raised -- about a corporation's duties to its stockholders vs. its bondholders -- likely will have to be resolved in court.

Under a timetable established yesterday, the bondholders have until March 12 to respond to Marriott's motion to dismiss the case, which was filed Wednesday. Marriott then will have until April 1 to respond to the response, and a hearing will be held on the motion on April 8.

The restructuring plan, scheduled to be completed no sooner than June 4, would leave the newly created Marriott International Inc. with the company's profitable hotels, food operations and retirement communities, and very little debt. Host Marriott Corp. would end up with the company's depressed real estate holdings, its airport and toll road concessions, and most of the $2.9 billion in debt, including about $1.9 billion in bonds.

Various bondholders, including some of the nation's biggest institutional investors, sued Marriott to block or alter the plan. They alleged, among other things, the Host Marriott company would not be able to meet its debt obligations and that Marriott failed to tell investors about the proposal when the company sold about $400 million in bonds to the public last spring.

Since December, while both sides have been negotiating over the restructuring, Judge Harvey had prevented the bondholders from proceeding with discovery, or collecting documents from the involved parties, and conducting depositions.

Yesterday, a day after Marriott filed its motion to dismiss the case, the judge lifted the stay on the discovery.

"We've already started receiving documents from Marriott, which analyzing," said Steven Cooper, an attorney for the plaintiffs. "Now we're going to start receiving documents" from Marriott's investment bankers, lawyers and accountants, Mr. Cooper said, "which in my experience often have the most revealing information contained in them."

Despite the breakdown in negotiations, Marriott continued to maintain that talks are continuing with some bondholders, whom it refused to name.

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