The Dallas company that is a partner in developing the Wyndham Inner Harbor East Hotel completed a financial restructuring yesterday that it says virtually assures its future involvement in the $134 million lodging project.
Patriot American Hospitality Corp.'s restructuring involves a cash infusion of more than $1 billion from a group of investors led by a New York merchant bank, and a commitment from two other firms to refinance $2.45 billion in debt.
The capital from Apollo Real Estate Advisors and pledges to refinance other debt from Chase Manhattan Bank and Bear, Stearns & Co. mean that Patriot American is likely to continue as part of the group constructing the 750-room hotel.
Analysts had speculated that Patriot American might be forced to abandon the Wyndham Inner Harbor East and other development projects as part of a deal with lenders to revitalize the ailing company.
"This gives us additional financial stability so that we can proceed with our growth plans," said Suzanne Cottraux, a Patriot American vice president. "Now we don't have the albatross of financial uncertainty hanging around our necks. Until further notice, it's safe to assume that we are proceeding with the Baltimore project."
But the capital infusion will come at a price for Patriot American, one of the nation's largest hotel owners, controlling 480 projects valued at $7.5 billion.
As part of the restructuring, Patriot American intends to relinquish its status as a real estate investment trust and fold itself into the Wyndham hotel chain, which it acquired for $1.1 billion in early 1998. The company will be known as Wyndham International Inc.
By relinquishing its REIT status, Patriot American is expected to save about $125 million annually before taxes because it will no longer have to pay out 95 percent of its net income in dividends. In exchange, Patriot American will be required to pay millions of dollars in annual federal income taxes.
Patriot American's top executive, Paul Nussbaum, also will be a casualty of the restructuring. Nussbaum, who founded the company in 1991, will remain on the company's board but give up his titles as chairman and chief executive.
James D. Carreker, chairman and chief executive of Patriot's Wyndham hotel operation, will take over the top jobs.
The Apollo investment team, which includes buyout firm Thomas H. Lee Co., Beacon Capital Partners Inc. and Rosen Consulting Group, will receive an initial stake of as much as 41 percent in Patriot. It also will hold eight of Patriot's 19 board seats.
Patriot American stumbled into turbulence last year when it became over-leveraged and its earnings failed to meet Wall Street expectations. This year, the company faces roughly $1.7 billion in debt repayments, the result of purchases of the Wyndham chain and its $2.1 billion deal to buy Interstate Hotel Co. in December 1997.
Without the Apollo capital infusion, Patriot American likely would have been forced to sell properties or file for federal bankruptcy protection, analysts said.
It also may have been forced to halt new development such as the Wyndham Inner Harbor East. Neither representatives from H&S Properties Development Co. nor Stormont Trice Co. -- partners in the Baltimore Wyndham scheduled for completion in late 2000 -- could be reached for comment.
But the hotel is expected to continue to face challenges from a local band of community groups opposed to it. On March 17, community group members intend to testify before state lawmakers in Annapolis in the hope of killing a bill that would give the hotel $75 million in tax breaks.
"Our contention is that this is not a convention center hotel and, as such, should not receive tax breaks as a result," said John Murphy, an attorney for the community group.
The Wyndham Inner Harbor East's developers have said the tax breaks are critical to the project's continuation.
Both the equity infusion and the dropping of its REIT status must be approved by Patriot American's shareholders.
Patriot American's shares rose 50 cents on news of the restructuring to close at $5.9375.
Pub Date: 3/02/99