Grant Hotel’s Owners Propose Way Out of Debt
The bankrupt owners of the U. S. Grant Hotel have proposed turning over management control and one-third ownership of the historic downtown property to lender Home Federal Savings as part of a preliminary plan to settle claims by Home Fed and other creditors.
But the plan as proposed would cause the City of San Diego’s $6-million claim against the hotel, as well as several other loans and trade debts, to be “extinguished.”
According to a conceptual draft of a Chapter 11 reorganization plan filed by owner U. S. Grant Hotel Associates in U. S. Bankruptcy Court, Home Federal would also provide the hotel with a “plan enabling loan” of an unspecified amount to cover the hotel’s operating losses and capital costs over the next three years.
In return for making the new loan and for calling off a threatened foreclosure, Home Federal would see its position as a secured creditor grow from $32 million to $39 million. The increase would be accomplished through execution of a new note with a principal amount reflecting the $7 million in accrued interest not paid to Home Federal since the Grant defaulted on its $32-million second-mortgage loan in January, 1987.
But other claims could be wiped out by the plan, including the money owed the city, most of which came from the federal government as a 1984 urban development grant. The city’s only hope of collection would be to win a lawsuit, now in court, claiming its debt is senior to Home Federal’s. Also wiped out would be debts owed the hotel’s former owner, Christopher Sickels, and several unsecured trade creditors.
Assistant City Atty. Curtis Fitzpatrick said Tuesday that his office is reviewing the plan and has no comment on its specifics. Steven Black, president of Sickels Group, was unavailable for comment Tuesday.
The plan also stipulates that the hotel’s general partner, Sybedon Corp., and Home Federal be dropped from all legal claims by the hotel’s limited-partner investors, some of whom filed suit against the hotel and related parties earlier this year claiming misrepresentation and securities violations.
Draft Called a ‘Hoax’
Attorney Michael Aguirre, who represents 22 investors in a class-action lawsuit against the hotel owners, Prudential-Bache Securities, Sickels and others, criticized the draft Tuesday as a “hoax” and an effort to “make limited partners give up real and substantial rights that they enjoy as victims of securities-law violations.”
Although recognizing that the plan is a “workable concept,” a Home Federal spokeswoman said, the savings and loan is still analyzing it to determine if it is preferable to foreclosure.
The “plan enabling loan” that Home Fed would provide the hotel to cover operating losses and capital improvements would probably would be in the “$1-million area,” the spokeswoman said.
Home Federal President Robert Adelizzi said he hadn’t seen the plan as of late Tuesday, but that his S&L; is “always willing to work with a borrower that has demonstrated good faith.”
“It’s going to take equity and expertise, and the equity certainly isn’t going to come from Home Federal,” Adelizzi said. If Home Fed were to accept the proposal, the S&L; could be responsible for lining up a new operator, the spokeswoman said.
Gerald Sims, attorney for Grant, said the proposal was drawn up after consultations with Home Federal on working out the delinquent loan. “We have been trying to get a commitment from Home Fed, but there is no commitment from them on this plan,” Sims said. “But we have been talking to Home Fed, and we are hopeful we can reach an agreement.’
Sims said the new funds from Home Fed could be used to build a health club or an in-house laundry facility to make the hotel more appealing to guests but would not be enough for the addition of rooms that hotel experts have said is imperative if the Grant is to attract more business.
Millions Lost
Hurt by lower occupancy than expected, the 78-year-old hotel has lost millions of dollars since reopening in December, 1985, after a four-year, $64-million refurbishing. The big losses caused the Grant to fall behind on loan payments and trade accounts, and Home Fed initiated foreclosure proceedings on the hotel in September.
The Grant filed for protection under Chapter 11 of the U.S. Bankruptcy Code on Feb. 22, shortly before Home Fed was to have sold the 283-room hotel at foreclosure auction. The filing gave the Grant relief from foreclosure for an indefinite time.
Monday’s filing by the Grant’s owner was “not a formal (reorganization) proposal,” Sims said Tuesday. The filing was made to comply with Bankruptcy Judge James Meyers’ ruling July 1 that the hotel present details of a possible reorganization in time for a July 28 hearing at which Home Fed’s request to initiate foreclosure proceedings once again will be heard.
