The Innkeepers matter was a Material Adverse Change and Specific Performance dispute arising from a buyer's attempt to abandon a binding agreement to acquire a portfolio of hotels citing bankruptcy. Innkeepers USA Trust and its affiliated debtors (“Innkeepers”), the owner and operator of a portfolio of 64 upscale and mid-priced extended-stay and select-service hotels affiliated with major national franchises, had filed for Chapter 11 protection in 2010 and pursued a sale through a competitive auction. In May 2011, following a contested auction, Cerberus- and Chatham-affiliated entities (the “Defendants”) entered into a binding commitment letter to acquire Innkeepers’ “Fixed/Floating” hotels for approximately $1.12 billion.
The parties agreed to close in August 2011, but the Defendants declined to close and, on August 19, 2011, purported to terminate the commitment letter by invoking its Material Adverse Change clause. Innkeepers filed an adversary proceeding seeking Specific Performance of the commitment letter or, alternatively, damages for its breach.
On behalf of Innkeepers, Mark E. Zmijewski—Professor Emeritus at The University of Chicago Booth School of Business—was retained to conduct an economic analysis of whether the hotels, taken as a whole, had experienced a material adverse effect between the transaction’s commitment date and the termination date, and to estimate Innkeepers’ damages should specific performance not be awarded. Professor Zmijewski was supported by Keith Bockus, Erik Himan, and Pavel Nikolov.
Professor Zmijewski examined the financial performance of Innkeepers’ portfolio of hotels, the lodging industry generally, and macroeconomic conditions. Using standard hotel-performance measures—revenue per available room (RevPAR) and EBITDA—he compared the portfolio's results between the commitment and termination dates against both the corresponding prior-year periods and the company’s 2011 budget.