Funds Freed to Keep Grant Hotel Open

Over the objections of the city of San Diego, a U. S. Bankruptcy Court judge Friday approved the release of $320,000 to the operator of the U. S. Grant Hotel from creditor Home Federal Savings, funds that will enable the money-losing hotel to stay open.

Hotel operator U. S. Grant Hotel Associates, a partnership headed by Sybedon Corp. of New York, received the financing approval from U. S. Bankruptcy Judge James W. Meyers just three months after the hotel received a $350,000 loan from Home Fed that was to have been sufficient for six months’ operations.

Meyers’ order came after a conference in the judge’s chambers that included attorneys representing the hotel, Home Federal and the city, which is also a hotel creditor. None of the attorneys would comment on what was said and the transcript from the exchange was ordered sealed.

Threat to Image

Speculation after the hearing was that the Grant requested the closed-door hearing to keep damaging details about the hotel’s financial problems from the public eye so as not to further erode the hotel’s image.

Meanwhile, the Grant’s owners and Home Federal, the hotel’s largest secured creditor, are “close” to working out a mutually acceptable reorganization plan, Grant attorney Ross Pyle told the court. Such a plan, as outlined in a draft filed by the Grant last month, could involve Home Fed taking over management control and a one-third interest in the property.

In any event, the two parties must agree to a plan by Thursday, Home Fed attorney Victor Vilaplana said Friday. If not, he will move that a trial be held in September to lift the automatic stay from foreclosure that the Grant received in February when it filed for Chapter 11 protection under the federal bankruptcy code.

Home Federal started foreclosure proceedings in September after the hotel, beset by lower than expected occupancy, defaulted on Home Fed’s $32-million loan. The Grant filed for Chapter 11 protection two days before the hotel was scheduled to be sold at foreclosure auction.

The $320,000 is needed because the hotel is losing money faster than anticipated, in part because of unfavorable publicity surrounding its financial problems, Pyle said after the hearing. “People are concerned about whether the hotel is open and will stay open,” Pyle told the court.

Although Home Fed is owed its $32-million loan plus $7 million in back interest and principal, it is in the S&L;’s best interests to keep the hotel operating until its ownership is reorganized or it is sold in a foreclosure auction, Home Fed officials have said.

Attorney Robert Sullivan, who represented the city at the hearing, declined to explain his client’s opposition to the release of the $320,000. But the city, which holds a poorly secured $6-million lien on the 283-room hotel, is thought to believe that any added indebtedness to Home Fed only makes its loan harder to recover through a foreclosure sale.

According to the hotel’s conceptual plan for reorganization filed last month, the city’s loan would be “extinguished.”