Bankruptcy and Hospitality Operations

Abstract

Hospitality operations that seek protection from creditors under U.S. bankruptcy laws have the opportunity to "reorganize"; that is, to restructure their existing debt while staying open for business. Reorganization is possible only if (1) there is reasonable likelihood that the operation can meet its revised obligations, and (2) the majority of the debtor's creditors agree to the reorganization plan. But the bankruptcy code also includes a system dubbed "cram down," which refers to a court's determination to provide secured creditors with cash payments over time of a total amount not less than the present-day (depreciated) value of the property. Only by electing special status can a creditor hope to participate in the future appreciation of the operation (and recoup the full value of its loan), but in doing so its ability to reject the reorganization plan may be jeopardized.