Hearing Date: November 10, 2010 at 10:00 a.m.

(Prevailing Eastern Time) Objection Deadline: October 27, 2010 at 4:00 p.m. (Prevailing Eastern Time)

MORRISON & FOERSTER LLP 1290 Avenue of the Americas New York, New York 10104 Telephone: (212) 468-8000 Facsimile: (212) 468-7900 Brett H. Miller Lorenzo Marinuzzi Jordan A. Wishnew Counsel for the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re Innkeepers USA Trust, et al., Debtors. ) ) ) ) ) ) ) Chapter 11 10-13800 (SCC) Jointly Administered

OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS TO THE MOTIONS OF (A) MIDLAND LOAN SERVICES, INC. AND (B) WELLS FARGO BANK, N.A. AND U.S. BANK NATIONAL ASSOCIATION TO TERMINATE EXCLUSIVITY The Official Committee of Unsecured Creditors (the Committee) of Innkeepers USA Trust and certain of its direct and indirect subsidiaries in the above-captioned chapter 11 cases, as debtors and debtors in possession (collectively, the Debtors), by its counsel, Morrison & Foerster LLP, hereby submits this objection (the Objection) to (A) Midland Loan Services, Inc.s (Midland) Motion to Terminate Exclusivity [Dkt. No. 348] (the Midland Motion) and (B) Motion of Wells Fargo Bank, N.A. (Wells Fargo), as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp. Commercial Mortgage Pass-Through Certificates, Series 2007-C1 and U.S. Bank National Association (U.S. Bank and, together

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with Wells Fargo and Midland, the Movants), as Trustee for the Registered Holders of MLCFC Commercial Mortgage Trust 2006-4, Commercial Mortgage Pass-Through Certificates, Series 2006-4 to Terminate Exclusivity and Joinder to Midland Loan Services, Inc.s Motion to Terminate Exclusivity [Dkt. No. 437] (the Wells Fargo Motion, and together with the Midland Motion, the Motions).1 In support of the Objection, the Committee respectfully represents and alleges, as follows: PRELIMINARY STATEMENT At the hearing held on September 1, 2010, the Court rejected the Debtors motion to assume the PSA (defined below) and in so doing, acknowledged that a debtors exclusive period was intended by Congress to provide for an opportunity for the debtor to negotiate with its constituents and reach a consensual plan, a successful plan. Tr. 423:2-5. The Court then advised the parties that, [a]fter today, without the burden of the restrictions imposed by the PSA, the Debtors will have wide berth to fulfill their fiduciary duties to conduct a plan process which maximizes value for all of the estates and treats the various tranches of debt with greater neutrality. Tr. 428:9-13. The Debtors will only be able to take these steps if they have the protections offered by the exclusive period provided for by Section 1121(b) of the Bankruptcy Code. The Movants argue that the Debtors prepetition failure to work with all of their creditors in formulating the Lehman/AIC Plan (defined below) or conduct a marketing process justify denying the Debtors the opportunity to retain their exclusive rights to file a reorganization plan. Such a position disregards the Courts explicit instructions to conduct a value-maximizing plan process. The Movants effectively seek to punish the Debtors for excluding them from

Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the applicable Motion.

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prepetition negotiations.

However, the stakes in this bankruptcy case are high, and the While the Committee

consequences of prematurely terminating exclusivity are significant.

understands and appreciates the Movants frustration, terminating exclusivity will substantially harm the Debtors estates and creditors and impair the Debtors ability to maximize value for the estates. By this Objection, the Committee is not sanctioning an indefinite extension of the Debtors exclusivity rights. Rather, the Committee believes that the interests of all parties will be best served by giving the Debtors a reasonable period of time to conduct a thorough marketing process and develop a consensual plan that will maximize the value of the Debtors estates for the benefit of all creditors. Breaking exclusivity at this early stage in these Chapter 11 cases would merely permit the Movants to engage in exactly the kind of partisan each-man-forhimself tactics that Lehman already attempted and that the Court soundly rejected. Just as the Debtors are expected to modify their conduct going forward and fulfill their role as fiduciaries for all of their creditors (under the watchful eye of the Court), so too should the Movants try to work with the Debtors towards achieving a consensual plan. The fact is, the Debtors need timetime to determine exactly how the Debtors assets can be marketed, time to conduct meaningful negotiations, and time to build consensus among their constituents regarding the preferred course of action. The protections provided by the exclusive period are the only way to ensure that the Debtors can adequately explore viable alternative plan structures and implement a consensual strategy based on an accurate assessment of both what will provide the greatest value for their creditors now and what will be sustainable in the long term following their emergence from bankruptcy. For all of these reasons, the Motions should be denied.

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BACKGROUND 1. On July 19, 2010 (the Petition Date), each of the Debtors filed with the Court a

voluntary petition for relief under Chapter 11 of the Bankruptcy Code, commencing the above captioned Chapter 11 cases. 2. Pursuant to an order of this Court dated July 20, 2010, the Debtors Chapter 11

cases are being jointly administered. 3. The Debtors continue to operate their businesses and manage their properties as

debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 4. On the Petition Date, the Debtors filed a motion (the PSA Motion) seeking

authority to assume a plan support agreement (the PSA) with Lehman ALI Inc. (Lehman), which would require the parties to support a proposed cramdown plan of reorganization (the Lehman/AIC Plan) that would, among other things, grant Lehman 100% of the equity of the reorganized Debtors. 5. On July 28, 2010, the United States Trustee for the Southern District of New York

appointed the five (5) member Committee2 pursuant to section 1102(a)(1) of the Bankruptcy Code. On that same date, the Committee selected Morrison & Foerster to serve as its counsel. 6. On August 23, 2010, the Committee filed a reservation of rights with respect to

the PSA Motion. 7. 8. 9. Motion.

The members of the Committee are: (i) JMC Global, (ii) PDQ Consulting, Inc., (iii) Triangle Renovations USA, (iv) American Hotel Register Company, and (v) The Eric Ryan Corporation.
2

On August 30, 2010, Midland filed the Midland Motion. On September 2, 2010, the Court entered an order denying the PSA Motion. On September 14, 2010, Wells Fargo and U.S. Bank filed the Wells Fargo

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ARGUMENT 10. Section 1121 of the Bankruptcy Code grants debtors the exclusive right to file a

plan of reorganization during the first 120 days of a Chapter 11 case, and to solicit votes for such a plan during the first 180 days, unless the court finds cause, pursuant to section 1121(d), to extend or reduce those exclusive periods. See In re Texaco, Inc., 76 B.R. 322, 326 (Bankr. S.D.N.Y. 1987) (noting that the party seeking to reduce or extend the exclusivity period has the burden of establishing cause.). 11. Factors relevant to determining the existence of cause include: a. whether the debtor is seeking an extension of exclusivity in order to pressure creditors to submit to the debtors reorganization demands; b. the existence of good faith progress towards reorganization; c. whether the debtor has made progress in negotiations with its creditors; d. whether the debtor has demonstrated reasonable prospects for filing a viable plan; e. the amount of time which has elapsed in the case; f. the size and complexity of the case; g. the necessity of sufficient time to permit the debtor to negotiate a plan or reorganization and prepare adequate information to allow a creditor to determine whether to accept such plan; h. the fact that the debtor is paying its bills as the become due; and i. whether an unresolved contingency exists. In re Adelphia Commcns Corp., 336 B.R. 610, 674 (Bankr. S.D.N.Y. 2006). After reviewing these factors, the Dow Corning Court ruled that the overriding factor is whether terminating the debtors exclusivity would facilitate moving the case forward. In re Dow Corning Corp., 208 B.R. 661, 670 (Bankr. E.D. Mich. 1997). 12. During the initial 120-day exclusive period, debtors have a lower burden to

establish a reasonable possibility of a successful reorganization within a reasonable time. Am. Network Leasing, Inc. v. Apex Pharms., Inc. (In re Apex Pharms., Inc.), 203 B.R. 432, 441 (N.D. 5
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Ind. 1996). A debtor is required to make a less detailed showing regarding feasibility early in the case. Id. During the early stages of bankruptcy a determination that reorganization is not feasible is not favored, and any uncertainties are resolved in favor of the debtor. In re P.J. Clarkes Rest. Corp., 265 B.R. 392, 407 (Bankr. S.D.N.Y. 2001) (citing In re 6200 Ridge, Inc., 69 B.R. 837, 843 (Bankr. E.D. Pa. 1987)). 13. exclusivity. Every applicable Adelphia factor weighs in favor of preserving the Debtors With respect to items (e) (time elapsed) and (f) (size and complexity),

approximately three months have elapsed in the Debtors casesa very short period, particularly in light of the substantial size and complexity of these cases. As the Court noted with respect to the Lehman/AIC Plan, it is difficult to understand what the rush is. The DIPs are now

approved. The hotels are generally performing well. The relationship with Marriott is on track. Tr. 420:11-14. The Court did not want to lock the Debtors into the terms of the PSA because it wanted the Debtors to explore possible alternatives. Breaking exclusivity and allowing

competing plans to be filed does not further the Courts directive; rather, it stifles any meaningful chance of building consensus. 14. Item (g) (necessity of time to negotiate) also weighs in favor of allowing

exclusivity to continue. The Debtors have been instructed by the Court to go back to the drawing board and formulate a plan based on a fulsome marketing process and open communications with creditors. See Tr. 418:5-12 (noting among the grounds for rejecting the PSA that the debtors did not run any marketing process or meaningfully interact[] with their secured creditors regarding plan proposals.). This process cannot occur overnight, and the Debtors should be given the necessary time to perform these tasks. Even before beginning the marketing process, the Debtors need to determine exactly what assets will be marketed, a point that is

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especially relevant following the desire expressed by certain creditors to take back their collateral. It is unclear at this point whether the Debtors business will remain intact or will emerge as a smaller entity. The Debtors ultimate strategy must be informed not only by what will provide the greatest value for creditors today, but also by what will be sustainable by the Debtors in the long term. The Debtors should be afforded a sufficient period of time to analyze all reasonable possibilities and to build consensus among their constituents regarding the most prudent and value-maximizing course of action. Building a consensus will be impossible if exclusivity is broken, and it would be inefficient and potentially very costly to rush the process by denying the Debtors the protections that exclusivity provides. 15. In addition, items (b) (good faith progress towards reorganization), (c) (progress

in negotiations with creditors), and (d) (reasonable prospects for filing viable plan) also justify a continuation of exclusivity. Despite what all parties will agree was an inauspicious start to these cases, the Debtors have begun making significant efforts to try and build consensus among the creditors. Representatives for the Committee and the Debtors have already held meetings to discuss the Debtors restructuring process, and the Committee understands that similar meetings have been held with all of the other significant constituent groups in these cases. Such actions support the Debtors right to continued exclusivity. See In re Dow Corning Corp., 208 B.R. at 668 (denying a motion to terminate exclusivity where [s]everal particles of evidence support the Debtors claim that it has demonstrated its willingness to compromise, at least to some extent.). 16. Although [i]n some instances, authority to file a competing plan may

additionally motivate the debtor to more earnestly negotiate an acceptable consensual plan,3 such motivation appears to be unnecessary here in light of this Courts directive. This Courts September 2, 2010 decision clearly advised all parties that the Court would not accept anything
3

Midland Motion, 39, (citing In re Mother Hubbard, Inc., 152 B.R. 189, 195 (Bankr. W.D. Mich. 1993)).

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other than a fair and open reorganization process. The Debtors appear to be committed to communicating openly with all of their creditors in order to maximize value and develop a consensual plan. The Committee believes terminating exclusivity at this point would have a detrimental effect on efforts to reach a consensual and confirmable plan. 17. The Movants understandably focus on the Debtors prepetition actions in

connection with the PSA. Good faith negotiations with the Debtors will be all but impossible if the Movants are simultaneously engaged in filing competing plans. The Movants professed reluctance to negotiate with the Debtors should not be considered as a factor in favor of terminating exclusivity. See In re Dow Corning Corp., 208 B.R. at 669 (noting that it takes two to tango and, where the failure to achieve a compromise cannot fairly be laid solely at the Debtors door, allowing exclusivity to continue weighed in favor of the debtor). The Movants should undertake negotiations with the Debtors, secure in the knowledge that the Court is monitoring the cases with an active and impartial eye and will not permit the Debtors to blindly ignore the interests of their constituents. 18. Allowing competing plans to be filed this early in the cases will destroy any

chance the Debtors have of reaching a consensus. Moreover, doing so could do more harm than good to the Debtors creditors. This is especially true given that the Movants would provide for the piecemeal sale or distribution of the Debtors assets,4 which will likely substantially impair the aggregate value of those assets to the detriment of the Debtors estates and all of their creditors. 19. If it becomes evident that the Debtors are not complying with the Courts

direction, then the issue of exclusivity can always be revisited.

See Wells Fargo Motion, 7 (seeking termination of exclusivity to permit the Property Level Lenders to file their own plan or plans with respect to the Property Level Debtors).

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20.

The Committee respectfully submits that it is too early in the Debtors cases to The Debtors must be given an opportunity to negotiate with their

terminate exclusivity.

constituents, build consensus, and work towards a reorganization plan that maximizes value for all of their creditors. CONCLUSION WHEREFORE, for all of the foregoing reasons, the Committee respectfully requests that this Court enter an order denying the Motions, and granting such additional relief as is just and proper. Dated: October 27, 2010 New York, New York

Respectfully submitted, /s/ Lorenzo Marinuzzi MORRISON & FOERSTER LLP Brett H. Miller Lorenzo Marinuzzi Jordan A. Wishnew 1290 Avenue of the Americas New York, NY 10104 Telephone: (212) 468-8000 Facsimile: (212) 468-7900 Counsel for the Official Committee of Unsecured Creditors of Innkeepers USA Trust, et al.

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