Marriott settlement gets first OK Bondholders' suits object to merger

June 19, 1993|By Timothy J. Mullaney | Timothy J. Mullaney,Staff Writer

A federal judge tentatively approved an agreement yesterday that would settle class-action lawsuits aimed at stopping Marriott Corp.'s plan to divide itself into two companies.

U.S. District Judge Alexander Harvey II scheduled an Aug. 6 hearing on a bid to have the settlement finally approved. Marriott bondholders who object to the settlement will be able to argue their case at the August hearing.

Bethesda-based Marriott said in October that it wanted to split itself into two companies: a virtually debt-free Marriott International Inc., which would own the company's hotel management and food services businesses, and Host Marriott Corp., which would own the company's highway travel plaza business and its hotels, many of which are saddled by heavy mortgages.

Bondholders immediately began fighting the deal, contending that Host Marriott wasn't strong enough to pay off the existing company's $2.9 billion in debt, most of which was slated to be paid by Host Marriott. They contended Marriott committed securities fraud and that the deal breached management's legal obligation to protect the rights of the company's creditors.

The settlement proposal would let the deal go ahead, but with changes.

The settlement would shift to Marriott International about $264 million of debt on land owned by the existing Marriott Corp. or by partnerships that own Marriott-franchised hotels. In exchange, Marriott International would receive interests in that land, which had been slated to go to Host Marriott.

Marriott International would also take over $44 million of Marriott Corp.'s revolving debt, and take ownership of two retirement communities worth an estimated $138 million, along with responsibility for $138 million in debt that goes with them. The company would also agree to waive management fees for some hotels retained by Host Marriott and make available $630 million in credit to Host Marriott.

But other bondholders, led by PPM America Inc., who have filed a suit separate from the class action, said they opposed the settlement. Lawyers for the state of Florida pension fund were also critical.

"If you let them get away with it, 10 or 15 other companies will try it," said I. Walton Bader, an attorney representing the pension fund.

The settlement would also pay bondholders for some of the lost value of bonds. Most bondholders would share in a settlement that includes up to $104 million in cash, common stock in Marriott Corp. worth up to $70 million, and another series of bonds called "exchange notes."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.