A bankruptcy judge on Thursday denied a request by an ad hoc group of Innkeepers USA Trust (KPA) preferred shareholders for an official shareholder committee in the real estate investment trust's Chapter 11 case.

Judge Shelley C. Chapman of the U.S. Bankruptcy Court in Manhattan said evidence and testimony presented by the shareholders raised questions but "is insufficient to satisfy the shareholders burden," needed to form an official committee.

The shareholders argued that some Innkeepers hotels secured by mortgages are worth more than their debt. Martin J. Bienenstock of Dewey & LeBouef LLP, a lawyer for the ad hoc committee, also talked about $7.4 million in an Innkeepers-controlled bank account that could be available to creditors. Innkeepers said the money has been put aside so the court could decide what happens with it.

Chapman sided with Innkeepers, whose lawyer, Anup Sathy of Kirkland & Ellis, said the committee didn't prove there was "substantial likelihood" of a "meaningful recovery." Innkeepers says it doesn't yet know whether shareholders will recover anything in the restructuring.

The preferred shareholders group, consisting of hedge fund managers Brencourt Advisors, Esopus Creek Advisors and Plainfield Asset Management, called a witness who gave an "implied" valuation of several Innkeepers-owned hotels at $47.5 million, in an attempt to prove to the court that some of Innkeepers' hotels may be solvent and that, as a result, shareholders could be entitled to some recovery.

The witness, Anders J. Maxwell, managing director at Peter J. Solomon Co., said he had some real estate background but had never before this case been asked to value hotels in a restructuring.

In his closing argument, Sathy called the implied valuation "speculative at best."

Chapman agreed, saying "I find it difficult to ascribe great weight to Mr. Maxwell's testimony," citing among other factors the fact that Maxwell only visited two of the six properties he was asked to value. The judge added that the shareholders have also demonstrated that they have access to adequate representation, another burden that must be met by parties seeking an official committee.

Later Thursday, Chapman denied the shareholder group's motion for an examiner in the case, who have investigated the "antics" surrounding a now-nixed plan that would have put Innkeepers in the hands of Lehman Brothers Holdings Inc. (LEHMQ) and Apollo Investment Corp. (AINV).

Under the plan, which Chapman has said wasn't "even handed," Lehman and current owner Apollo would've bought the company with Lehman immediately selling its half to Apollo. The preferred shareholders wanted the examiner to look into whether Innkeepers tried to sell its properties to other owners, and whether company officers and directors didn't carry out their fiduciary duties with certain "acts and omissions."

Among other reasons they wanted an examiner is to look into whether Apollo's 2007 leveraged buyout of Innkeepers could be unwound due to "fraudulent conveyance." Innkeepers, based in Palm Beach, Fla., filed for Chapter 11 protection in July to restructure more than $1 billion in debt, much of which stemmed from the Apollo buyout.

Said Chapman, "I find there is no basis to appoint an examiner." She added that if future evidence is uncovered, the committee "could take another run at it."

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Joseph Checkler, Dow Jones Daily Bankruptcy Review; 212-416-2152; joseph.checkler@dowjones.com
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