Hearing Date and Time: June 23, 2011, 10:00 a.m.

Response Deadline: June 17, 2011, 4:00 p.m.

HAYNES AND BOONE, LLP 30 Rockefeller Plaza, 26th Floor New York, New York 10112 Telephone: (212) 659-7300 Facsimile: (212) 884-8211 Lenard M. Parkins (NY Bar # 4579124) John D. Penn (NY Bar # 4847208) Mark J. Elmore (admitted pro hac vice) Attorneys for Midland Loan Services, a division of PNC Bank, N.A. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK In re: INNKEEPERS USA TRUST, et al., Debtors. ) ) ) ) ) ) ) Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

OBJECTION OF MIDLAND LOAN SERVICES TO CONFIRMATION OF THE FIXED/FLOATING AND REMAINING DEBTOR PLANS OF REORGANIZATION Midland Loan Services, a division of PNC Bank, N.A., as special servicer for the Debtors Fixed Rate Mortgage Loan (Midland),1 by its undersigned attorneys, respectfully submits this Objection of Midland Loan Services to Confirmation of the Fixed/Floating And
Midland pursuant to the Pooling and Servicing Agreement services and administers that certain secured loan in the amount of not less than $825,402,542 plus interest, costs and fees (the Fixed Rate Mortgage Loan) owed by certain of the Debtors. The Fixed Rate Mortgage Loan was made pursuant to that certain loan agreement dated as of June 29, 2007 (as amended, the Fixed Rate Mortgage Loan Agreement), and is evidenced by (i) a certain Replacement Note A-1 and (ii) a certain Replacement Note A-2, each dated as of August 9, 2007, and each in the original principal amount of $412,701,271. Replacement Note A-1 was assigned to LaSalle Bank National Association as trustee for the holders of the LB-UBS Commercial Mortgage Trust 2007-C6. Bank of America, N.A. was the successor-in-interest to LaSalle Bank National Association and U.S. Bank, National Association is the successor-in-interest to Bank of America, N.A. (the Fixed Rate Trustee). Replacement Note A-1 is currently held by the Fixed Rate Trustee. Replacement Note A-2 was assigned to and is currently held by the trustee for the holders of the LB-UBS Commercial Mortgage Trust 2007-C7.
1

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Remaining Debtor Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the Objection) and in support thereof, respectfully states as follows:2 INTRODUCTION 1. The Plans represent four (4) separate and distinct, multi-debtor plans of

reorganization in 92 jointly administered cases that have not been substantively consolidated. The Court and parties have properly worked from the outset to maintain the separateness of each Debtor so they would not be consolidated. Any attempt at consolidation is inappropriate. 2. With respect to the Fixed/Floating Plan, the parties agreed and the Courts

Bidding Procedures Order approved consent and approval rights for Midland (and others) on the Fixed/Floating Plan and Confirmation Order. The Plan Supplement remains incomplete as of the filing of this Objection. The Plan, as filed, contains other defects (which can be remedied as described below). Finally, even at this late date, the Debtors have not provided a proposed form of Confirmation Order for review, comment and Midlands approval. Midland does not consent to the Plan as filed and objects to any attempt to confirm the Fixed/Floating Plan in derogation of the consent and approval rights approved by this Court. 3. The Remaining Debtor Plan is actually sixteen (16) separate plans for sixteen (16)

separate Debtors, each with their own unique creditors. Midland is primarily concerned with Grand Prix Holdings LLC (Holdings), where Midland has an Allowed Guaranty Claim and for which a liquidating plan has been proposed. Since Holdings is the ultimate parent entity at the top of the capital structure for all of the Debtors, actions taken in the fifteen (15) other Remaining Debtor subsidiary cases (as well as Holdings actions as the ultimate parent) directly impact what Holdings will receive to distribute to its creditors. The Remaining Debtor Plan, as it
2

Terms not defined herein shall have the meaning given to them in the Plan and Disclosure Statement (each as defined below).

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applies to Holdings, improperly defines an Allowed Claim in a manner contrary to the effect of this Courts Bar Date Order (as defined below) and should be revised as described in Paragraph 20 below. 4. Again with respect to Holdings, as a relatively simple liquidation where the cash

will ultimately be distributed to its sophisticated creditors or Interest holders, the parties other than the Debtors should determine among themselves how to deal with Claims and whether one or more might be objectionable. This discretion should not lie with the Disbursing Agent as proposed by the Debtors. Rather, in dealing with the Claims and distributions, Holdings postconfirmation role as Disbursing Agent should be the purely ministerial task of disbursing money when claims have been fully and finally adjudicated. Only those parties with a pecuniary interest in Holdings should decide whether and to what extent to litigate claims issues. 5. If Class RB4, the only class of impaired claims against Holdings, rejects the

Remaining Debtor Plan as to Holdings, the plan of reorganization proposed by and for Holdings will fail. The confirmation standards of 11 U.S.C. 1129 must be considered with respect to each of the Remaining Debtors. If Class RB4 rejects the Remaining Debtor Plan, confirmation for Holdings is prohibited under both Section 1129(a)(10) and (b). As drafted in the Holdings case, the Remaining Debtor Plans failure to pay Holdings creditors claims in full or cancel Interests violates the absolute priority rule, and any attempt to use a class of impaired claims against another of the fifteen (15) Remaining Debtors to confirm a plan against Holdings by cramdown on (its rejecting creditors) would obliterate the separateness that the Debtors have professed and the Court has enforced from the beginning of these cases. 6. Finally, the Remaining Debtor Plan proposes a settlement providing for

payments to certain of the Debtors preferred shareholders that the Bankruptcy Code prohibits.

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The settlement is couched in terms of a substantial contribution claim under the Bankruptcy Code. The payments to the preferred shareholders do not qualify as substantial contribution payments under Section 503(b) of the Bankruptcy Code. Further, aside from using an improper Debtor to fund the payments, the payments would result in certain Ad Hoc Committee members receiving more than their pro rata share of funds payable to (a) all preferred shareholders and (b) the other Class C Preferred Shareholders. The outcome of these issues directly affects the amount of cash that may be available for distribution to Holdings creditors. Each of the outcomes would be precedential and could open the floodgates to committee members and creditors seeking additional profits or remuneration beyond their pro rata recovery and which are not considered substantial contributions under the Bankruptcy Code. BACKGROUND 7. On July 19, 2010 (the Petition Date), each of the Debtors filed a petition with

this Court under chapter 11 of the Bankruptcy Code. The Debtors are operating their businesses and managing their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. On July 28, 2010, the United States Trustee for the Southern District of New York appointed the official committee of unsecured creditors. 8. On March 11, 2011, the Bankruptcy Court entered the Bidding Procedures Order,

approving the Debtors entry into the Amended and Restated Binding Commitment Agreement Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust under which the Debtors were authorized to conduct an auction for the Debtors equity interests. 9. Fixed/Floating On May 2, 2011, the Debtors commenced the auction to sponsor a plan for the Debtors with competitive bidding between Five Mile/Lehman and

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Cerberus/Chatham. The Debtors closed the auction to sponsor the Fixed/Floating Debtors after Cerberus/Chatham submitted a bid valued by the Debtors at $1.1187 billion. 10. On May 3, 2011, the Debtors commenced an auction regarding five of the seven

hotels (the LNR Properties) not included among those owned and operated by the Fixed/Floating Debtors. The Debtors closed the auction to sell those hotels after Chatham submitted a bid valued by the Debtors at $195 million for the LNR Properties. 11. In connection with the Cerberus/Chatham winning bid to sponsor the

Fixed/Floating Plan, the Debtors entered into the Amended and Restated Binding Commitment Agreement Regarding the Acquisition and Restructuring of Certain Subsidiaries of Innkeepers USA Trust dated May 16, 2011 and a similar commitment on the LNR Properties with respect to the Remaining Debtor Plan. 12. On May 18, 2011, the Debtors filed their Plans of Reorganization Pursuant to

Chapter 11 of the Bankruptcy Code (collectively, the Plan)3 and Disclosure Statement for Debtors Plans of Reorganization Pursuant to Chapter 11 of the Bankruptcy Code (the Disclosure Statement).4 The Plan is an aggregation of four separate and distinct multi-debtor plans of reorganization for the 92 Debtors, which include: (i) the Fixed/Floating Plan; (ii) the Anaheim Plan; (iii) the Ontario Plan; and (iv) the Remaining Debtor Plan (cumulatively, the Plans). Because the Plans do not contemplate nor require the substantive consolidation of the

Classes of Claims in the Fixed/Floating Plan are designated as Class FF_ while those in the Remaining Debtor Plan are designated as Class R__.

On May 19, 2011, the Court entered its Order Approving (A) Adequacy of the Disclosure Statement; (B) Certain Dates Related to Confirmation of the Plan; (C) Certain Voting Procedures and the Form of Certain Documents to be Distributed in Connection with Solicitation of the Plan; and (D) Proposed Voting and General Tabulation Procedures [Docket #1441] (the Disclosure Statement Order).

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Debtors, the confirmation requirements of the Bankruptcy Code must be met with respect to each of the Debtors individually. OBJECTIONS AND ARGUMENTS IN SUPPORT THEREOF 13. In order for any of the Plans to be confirmed, the Debtors must satisfy each of the

requirements of Section 1129 of the Bankruptcy Code with respect to each Debtor. See 11 U.S.C. 1129. For the reasons set forth below, the Fixed/Floating and Remaining Debtor Plans, as to Holdings, fail to satisfy the requirements of Section 1129, and accordingly, Midland objects to confirmation of the Fixed/Floating and Remaining Debtor Plans. I. Objections Applicable To Both Fixed/Floating and Remaining Debtor Plans A. 14. The Complete Plan Supplement Must Comply With Section 1127 And Bankruptcy Rule 3019 The Plan Supplement is a critical set of documents that is being created and filed

on a rolling basis to be completed sometime before the Confirmation Hearing. Plan, Art. I.176. As of the date of filing this Objection, the Plan Supplement remains incomplete. Midland has the following consent rights regarding the Plan: The Plan Sponsors, the Debtor, and Midland each hereby covenant and agree to negotiate in good faith the Fixed/Floating Plan Documents, each of which shall (i) contain the same treatment and economic terms as set forth herein (subject to adjustment as agreed to by the Parties in each of their reasonable sole discretion) and other terms consistent in all respects with the terms set forth in the Amended and Restated Commitment Letter and this Amended and Restated Term sheet, and (ii) be acceptable in all other respects to the Plan Sponsors, the Debtors and Midland in each of their respective reasonable discretions. See Order (I) Authorizing the Debtors to Enter into the Amended Commitment Letter with Five Mile Capital II Pooling REIT LLC, Lehman ALI Inc., and Midland Loan Services, (II) Approving the Amended New Party/Midland Commitment Between the Debtors and Midland Loan Services, (III) Approving Fixed/Floating Bidding Procedures, (IV) Approving Bid Protections, (B) Authorizing an Expense Reimbursement to Bidder D, and (VI) Modifying
1967187_14 (2).DOC -6-

Cash Collateral Order to Increase Expense Reserve [Docket No. 1009] (order approving Debtors entry into the Commitment Letter, Amended and Restated Term Sheet, at Commitments.). Without giving Midland an opportunity to review the Plan Supplement and provide such consent, the Debtors cannot proceed without violating the express terms of the Bidding Procedures Order and the Commitment Letter. 15. Much of the information to be included in the Plan Supplement is critical to

confirmation issues and therefore should have been disclosed a reasonable time prior to the objection and voting deadlines. Also, the Controlling Document provision (Plans, Art. I.F.) provides that the terms and documents included within the Plan Supplement control over any conflicting information in the Plans. Midland objects to the extent that the Plan Supplement or any other modifications to the Fixed/Floating or Remaining Debtor Plans does not comply with the requirements of Section 1127 and Bankruptcy Rule 3019, contravenes the agreement approved regarding the Fixed/Floating Plan and attempts to circumvent Midlands consent rights.5 B. 16. LNR Restructuring Fee Payment By All Debtors Is Improper On May 6, 2011, the Debtors sought approval of a stipulation by and between the

Debtors, LNR and the Ad Hoc Committee (the LNR Stipulation Motion) [Docket No. 1205]. As part of the LNR Stipulation, LNR will receive a $2.5 million structuring fee (the LNR Structuring Fee) from the LNR Debtors, which consists of the Debtors that own and operate the LNR Properties. LNR Stipulation Motion p. 2.6 On May 16, 2011, this Court approved

Midland further reserves all rights to consent or not to the Fixed/Floating Plan as modified by the Plan Supplement as provided under the Commitment Letter after review of the Plan Supplement (when finally completed, filed and served).
6

The LNR Properties are the properties owned by: KPA RIGG, LLC; KPA RIMV, LLC; KPA Washington DC, LLC; KPA Tysons Corner RI, LLC and KPA San Antonio, LLC.
-7-

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payment of the LNR Structuring Fee by the LNR Debtors. See Docket No. 1397. The Plan provides that [o]n the Effective Date of the Remaining Debtor Plan, the Debtors shall pay the LNR Structuring Fee in full in Cash. Plans, Art. II.E (emphasis added). Perhaps by innocent oversight, the Plans do not specify that only the LNR Debtors are required to pay the LNR Restructuring Fee. Midland objects to the payment of the LNR Structuring Fee from a source other than the LNR Debtors. C. 17. The Troy Settlement Agreement Should Only Be Assumed By The Debtors That Are Parties To The Troy Settlement On August 31, 2010, this Court approved the entry into a settlement by and

between certain of the Debtors (namely Innkeepers USA Trust, Grand Prix Floating Lessee LCC, Grand Prix Troy (Central) LLC, and Holdings), and Marriott International, Inc. to settle an ongoing dispute involving one of the Floating Rate Debtors and its hotel in Troy, Michigan (the Troy Settlement). See Docket No. 357. None of the other Debtors were parties to the Troy Settlement. Nevertheless, the Plan contemplates the assumption and assignment of the Troy Settlement to New HoldCo. Midland objects to the assumption of the Troy Settlement by Debtors other than Innkeepers USA Trust, Grand Prix Floating Lessee LCC, Grand Prix Troy (Central) LLC, and Holdings the parties to the Troy Settlement. II. Objections To Remaining Debtor Plan A. 18. The Definition Of Allowed Would Improperly Exclude Midlands Guaranty Claim Against Holdings And Should Be Corrected As noted below, Midland was not required to file a proof of claim in connection

with the guaranty obligation of Holdings. The definition of Allowed needs to be modified because the current definition fails to recognize Midlands status and, if not corrected, might be

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argued to preclude the Midland Guaranty Claim from being an Allowed Claim within the definition rather than through an adjudication on the merits.7 19. Under the Plans, the definition of Allowed includes the following language:

Any Claim or Interest that has been or is hereafter listed in the Schedules as Disputed, contingent, or unliquidated, and for which no Proof of Claim or Interest has been timely Filed, is not considered an Allowed Claim or Allowed interest and shall be expunged without further action by the Debtors and without any further notice to or action, order, or approval of the Bankruptcy Court. Plans, Art. I.7. 20. This definition should be amended to include as Allowed Claims, Claims such as

the Midland Guaranty Claim, that did not require a proof of claim to be filed pursuant to the Bar Date Order.8 The definition should be amended as follows (modified language is highlighted below): (b) (1) any Proof of Claim or Interest that is timely Filed by the applicable Claims Bar Date, as to which no litigation (whether stayed or unstayed) is pending and to which no objection or other challenge has been or is interposed in accordance with the Plan or such other applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, or the Bankruptcy Court, if any, and (2) any Claim that is not subject to any applicable Claims Bar Date, as to which no objection or other challenge has been or is interposed in accordance with the Plan or such other applicable period of limitation fixed by the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, or the Bankruptcy Court, if any Any Claim or Interest that has been or is hereafter listed in the Schedules as Disputed, contingent, or unliquidated, and for which no Proof of Claim or Interest has been timely Filed and which is not included in subsections (a)-(h) herein,
Midland previously raised issues regarding its claim in the Midland Loan Services Motion For An Order Determining Its Guaranty Claim Against Grand Prix Holdings LLC To Be Allowed In Full [Docket No.1482] (the Midland Guaranty Motion). The Remaining Debtor Plan cannot adjudicate the issue by fiat through definitions in a plan. Rather, it can only be adjudicated on the merits either i) through resolution of the Midland Guaranty Motion or ii) ruling on an appropriately filed claim objection that is determined on the merits after notice and a hearing.
8 7

Order Establishing Deadlines and Procedures for Filing Proofs of Claim and Approving the Form and Manner of Notice Thereof (the Bar Date Order) [Docket No. 440].

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is not considered an Allowed Claim or Allowed interest and shall be expunged without further action by the Debtors and without any further notice to or action, order, or approval of the Bankruptcy Court. 21. The Bar Date Order clearly states that parties identified as Representatives in

the Final Cash Collateral Order,9 including Midland, were not required to file a proof of claim relating to their respective Loan Obligations. See Bar Date Order 8.i. Included among the documents comprising the Fixed Rate Mortgage Loan Agreement (with such documents as defined in the Fixed Rate Mortgage Loan Agreement) is that certain Guaranty executed as of June 29, 2007 by Grand Prix Holdings LLC for the benefit of Lehman ALI Inc (the Midland Guaranty Claim). The Debtors acknowledged the validity of the Midland Guaranty Claim under the Final Cash Collateral Order. See Final Cash Collateral Order at pp. 3-5. Thus, Midlands Guaranty Claim against Holdings is an Allowed Claim, and under the Bar Date Order Midland was never required to file a proof of claim. subordination, of the Midland Guaranty Claim is pending. 22. Midland objects to any definition of Allowed that does not permit the Midland No objection to, or request for

Guaranty Claim against Holdings or any other claim relating to Midlands respective Loan Obligations identified in the Bar Date Order to fall within the definition of Allowed. Midland likewise objects to any additional provision in the Plans that in any way may vitiate the Midland Guaranty Claim or prejudice its pending Midland Guaranty Motion. B. 23. The Disputed Claims Reserve For Holdings Is Improper Pursuant to the Plans, a Disputed Claims Reserve will be established whereby the

amount to be placed in reserve by the Disbursing Agent is calculated by determining the lesser of

Final Order Authorizing the Debtors to (i) Use the Adequate Protection Parties Cash Collateral and (ii) Provide Adequate Protection to the Adequate Protection Parties Pursuant to 11 U.S.C. 361, 362 and 363 (the Final Cash Collateral Order) [Docket No. 402].

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(a) the asserted amount of the Disputed Claim filed with the Bankruptcy Court, (b) the amount, if any, estimated by the Bankruptcy Court pursuant to section 502(c) of the Bankruptcy Code or (c) the amount otherwise agreed to by the relevant Debtor and the Holder of such Disputed Claim or Interest for reserve purposes. See Plan, Art. VI.D.3. (emphasis supplied). There is no need for such a reserve for Holdings. 24. Holdings is unique in that it will have fewer than ten (10) creditors and one

Interest holder at the top of the capital structure.10 The last dollars of the Remaining Debtors will be distributed from Holdings. With so few parties, all funds should be reserved and only distributed once all Claims have been fully and finally determined. 25. As drafted, the Remaining Debtor Plan would leave Holdings, owned by Apollo

Investment Company (Apollo), in control of the Disbursing Agent because Apollos equity Interests are not cancelled under the Remaining Debtor Plan. Allowing Apollo to control disbursements without Court supervision or approval and before Claims have been fully adjudicated on the merits would be imprudent and improper. The ultimate distribution of the last dollars in these cases should be a completely ministerial function based on final orders and should not provide any discretion for Apollo or anyone acting at its direction to control their disbursement or claim process. This can only occur if all funds are held until no additional claim litigation can occur. C. 26. The Plan For Holdings May Only Be Confirmed With The Acceptance By An Impaired Class of Claims Against That Debtor From the first hearings in these cases on cash collateral and other motions, this

Court has carefully conducted these cases so that each of the Debtors cases remains separate

The only Claims are the guaranty claims on the Fixed Rate Loan, Floating Rate Loan and Anaheim Loan, plus the contingent claim filed by Marriott International.

10

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with no illusion that these cases have been substantively consolidated.11 The Plans are no different. Although termed a joint plan, the Plans are actually four, separate and distinct mulitdebtor plans each with separate classes and subclasses of debtors. Pursuant to Section

1129(a)(10), a plan may only be confirmed if at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by an insider. 11 U.S.C. 1129(a)(10). 27. Because Ballots are due the day following the deadline for objections,12 it is

unclear whether there will be an impaired accepting class from Holdings that votes in favor of the Plan. Class R4B, general unsecured claims against Holdings, is the only class of Claims against Holdings. If Class RB4 rejects the Remaining Debtor Plan, Midland objects to any effort to seek the confirmation of the Remaining Debtor Plan with respect to Holdings because no impaired accepting class of Holdings claims will have accepted the Remaining Debtor Plan. Section 1129(a)(10) cannot be satisfied for the Remaining Debtor Plan with respect to Holdings by relying on the acceptance of an impaired class of Claims against any other Debtor. 28. The Plans explicitly state that [t]he Plan does not contemplate substantive

consolidation of any of the Debtors. See Plan Art. IV.A. Where substantive consolidation has not occurred, bankruptcy courts routinely evaluate the section 1129(a)(10) requirement on a perdebtor basis. See, e.g., In re Neenah Enters., Case No. 10-10360 (MFW), 2010 Bankr. LEXIS 3058 (Bankr. D. Del. July 6, 2010) (finding compliance with section 1129(a)(10) where at least
In fact as recently as the June 7, 2011 hearing on the Best Western International, Inc.s Motion for Allowance of Administrative Expense Claim Administrative Claim [Docket No. 1198], the Court noted that these cases are not and will not be substantively consolidated.
12
11

Pursuant to the So Ordered Stipulation entered June 8, 2011 [Docket No. 1639], those asserting guaranty claims against Holdings have ten (10) days to submit their Ballots. Accordingly, those Ballots are due on June 18, 2011 while objections to confirmation of the Remaining Debtor Plan are due on June 17, 2011.

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one impaired consenting class against each debtor); In re Eagle Bus Mfg., Inc., 134 B.R. 584, 600 (Bankr. S.D. Tex. 1991), affd 158 B.R. 421 (S.D. Tex. 1993) (finding compliance with section 1129(a)(10) of a joint plan proposed by jointly administered debtors because each Debtor has at least one impaired class of Claims that has accepted the Plan, excluding any acceptance by an insider); In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723, 761 (Bankr. S.D.N.Y. 1992) (finding compliance with section 1129(a)(10) of a joint plan proposed by multiple debtors reduced to three separate entities pursuant to substantive consolidation by saying [t]he Plan has been accepted by at least one class of impaired Creditors of Equity Interest holders of each DBL Group, DBL Inc., and DBL Trading who are not insiders). 29. Bankruptcy Rule 1015(c) reinforces the fact that Section 1129 requirements must

be met by individual debtors, since it provides that while the Court may order consolidation or joint administration of two or more cases to avoid unnecessary costs and delay, any such order must protect[ ] the rights of the parties under the Code. See Bankruptcy Rule 1015(c). If Section 1129(a)(10) were to be read to permit a joint plan propounded by a group of debtors to circumvent the corporate separateness relied upon by lenders and other creditors, creditors rights and expectations would be upset and would not be protected. 30. While the Debtors are being jointly administered solely for the purposes of

administrative convenience, the Bankruptcy Code and indeed, corporate law itself is premised on the concept of the separateness of debtor entities. A plan of reorganization in jointly-administered cases is purely a procedural tool that cannot affect the substantive rights of stakeholders. See Leslie Fay Cos., 207 B.R. 764, 779 (Bankr. S.D.N.Y. 1997); In re I.R.C.C., Inc., 105 B.R. 237, 238 (Bankr. S.D.N.Y. 1989) (Joint administration is distinguished from substantive consolidation because it is simply a procedural consolidation designed for

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administrative convenience and does not affect the substantive rights of the creditors of the different estates.). 31. As to the Holdings plan, the confirmation requirements must be satisfied with

respect to Holdings as an independent entity. The acceptance by classes of claims associated with any other Debtors is irrelevant for purposes of satisfying Section 1129(a)(10) with respect to Holdings. 32. Only the acceptance by Class R4B, general unsecured claims against Holdings,

may satisfy the requirements of Section 1129(a)(10) with respect to Holdings by voting in favor of the Remaining Debtor Plan. Any attempt to satisfy Section 1129(a)(10) using an impaired accepting class of claims against another Debtor is improper, and Midland opposes any such effort. D. Holdings Plan Violates The Absolute Priority Rule By Permitting Equity Holders to Retain their Equity Interests without Paying Holdings Creditors In Full As noted above, the deadline for Ballots regarding claims against Holdings falls

33.

after the deadline to object to confirmation of any of the Plans. If Class R4B rejects the Remaining Debtor Plan, the Remaining Debtor Plan cannot be confirmed as to Holdings. Section 1129(b)(1) requires that a plan be fair and equitable. Included within the purview of fair and equitable is the absolute priority rule, which prohibits the holders of claims or interests with lower priority in a debtors capital structure, from receiving distributions or retaining an interest unless and until all senior claims and interests have been paid in full. 11 U.S.C. 1129(b)(2)(B). See Coltex Loop Cent. Three Partners, L.P. v. BT/SAP Pool C Assocs., L.P., 138 F.3d 39, 42-43 (2d Cir. 1998) (holding that where unsecured creditors were only going to receive ten cents on the dollar that the plan violated the absolute priority rule because former equity holders would receive property under the plan); see also Bank of Am. Nat. Trust & Sav. Assoc. v. 203 N. LaSalle
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St. PShip, 526 U.S. 434 (1999). Thus, an equity holder may not even retain its equity interest where creditors claims are not paid in full. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 207-08 (1988) (Whether the value is present or prospective, for dividends or only for purposes of control a retained equity interest is a property interest to which the creditors are entitled before the stockholders can retain it for any purpose whatever.) (citations and quotations omitted) (emphasis added). The Remaining Debtor Plan does not cancel the Interests in Holdings. 34. The Disclosure Statement projects an estimated recovery by holders of general

unsecured Claims against Holdings of between 0% and 3%. See Disclosure Statement p. 16. Since Interests are not cancelled, the Remaining Debtor Plan would violate the absolute priority rule in the Holdings case if Class R4B rejects the Remaining Debtor Plan. E. 35. The Role of Disbursing Agent For Holdings Should Be Limited to Ministerial Tasks Section 1129(a)(5)(A)(ii) requires that the appointment of any successor to the

debtor must be consistent with the interests of creditors and equity security holders and with public policy. 11 U.S.C. 1129(a)(5)(A)(ii). The Remaining Debtor Plan, as proposed with respect to Holdings, would create a structure that provides unnecessary power and discretion as the Disbursing Agent, which could be used to manipulate cash distributions for Apollos benefit. This possibility can easily be eliminated in Holdings case because the Remaining Debtor Plan is a simple liquidation of assets and distribution of funds to a very limited number of sophisticated creditors. 36. The Plans provide that the Disbursing Agent will be the Debtors or their agent or

any other Entity or Entities selected by the Debtors in their sole discretion. As such, the Remaining Debtor Plan contemplates the appointment of the Debtors (or someone closely

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aligned with them) as the Disbursing Agent for each of the Debtors with a substantial amount of discretion regarding the Claims resolution process. As to Holdings, the Debtors, as the

Disbursing Agent for Holdings, should not have any significant discretion and should instead be strictly limited to the following tasks currently listed in the Plans: responsibility for making distributions under the Plans, Plans Art. VI.B; and the sole authority to administer and adjust the Claims Register to reflect any such settlements or compromises without any further notice to or action, order, or approval of the Bankruptcy Court, Plans Art. VI.A.2.

The remaining tasks and issues regarding claims, objections or disbursements should be dealt with by and among the parties with a pecuniary interest in Holdings, including its creditors. 37. Decisions and actions regarding, among other things, making objections to Claims

and the amount of any reserve for disbursements thereon should not be made by Holdings, the Debtors or a new party named as the Disbursing Agent. Holdings very few creditors are sophisticated and should make their own determination regarding which Claims should be allowed or subject to an objection and whether or not to spend money in pursuit of claims objections. Likewise, if Holdings equity owner (Apollo) wants to challenge any creditors claim, it is a sophisticated party and can do so on its own. 38. The irony is that the Debtors propose that Apollo be left with ultimate decision

making authority in pursuing objections to claims. One of the material risks in the present Disbursing Agent role for Holdings (as currently drafted) is that the Debtors will expend all of the funds that would be payable to Holdings by litigating the allowability of Claims, including the Midland Guaranty Claim. The Remaining Debtor Plan, as drafted, allows Apollo to direct or encourage the Debtors to object to Claims for its benefit. Given what has transpired in these cases to date, the Remaining Debtor Plan as to Holdings should not empower the Debtors

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(controlled by Apollo) on an unrestricted basis to be the ultimate arbiter consuming the funds distributable to Holdings creditors in litigating objections to their Claims. 39. Holdings creditors and Interest holders should determine the claims resolution

process. The Debtors have no skin in the game in determining which parties should receive distributions from Holdings. The parties with Claims against, and Interests in, Holdings should have responsibility for asserting and defending their claims and should bear their own litigation expenses. As such, providing the Debtors with more than ministerial duties with respect to claims, reserves and disbursements is not consistent with the interests of creditors and equity security holders and with public policy. 11 U.S.C. 1129(a)(5)(A)(ii). F. 40. The Ad Hoc Committee Agreement Is Impermissible The Remaining Debtor Plan includes a provision whereby the Ad Hoc

Committee and its advisors will receive an Allowed Administrative Claim in the amount of $3.5 million, which amount shall be paid by a Remaining Debtor (other than Grand Prix Holdings, Innkeepers USA Trust, and Innkeepers Financial Corporation) on the Effective Date of the Remaining Debtor Plan. See Plans, Art. II.H.13 The $3.5 million is presumably in the nature of a substantial contribution claim under Section 503(b)(3) or (4).14 In exchange, the Ad Hoc Committee has agreed to waive any right to challenge the allowability of the Innkeepers USA Trust Preferred A Interests. See Plans, Art. IV.AA. The Innkeepers USA Trust Preferred A Interests (the Preferred A Interests) are owned by Holdings, which is owned by Apollo.
13

The payment would presumably be paid from one or more of the Debtors obligated under the LNRServiced Loans. The Ad Hoc Committee and its members have no claims against or equity interest in those Debtors.

The Disclosure Statement, in describing the agreement, notes, Additionally, the Ad Hoc Committee Agreement eliminates any further claims the Ad Hoc Committee may have for substantial contributions for, without limitation, (a) its analysis of the approximately $7.4 million in Cash in the LP Account, (b) its offers to purchase certain of the Debtors' assets, and (c) its active participation throughout these Chapter 11 Cases.. See Disclosure Statement, Art. IV.O.

14

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41.

The agreement is improper because (a) it impermissibly attempts to provide an

administrative claim payment to the Ad Hoc Committee members without complying with the requirements of Section 503(b)(3)(D) and Bankruptcy Rule 9019; and (b) it provides for the source of payment of the administrative claim from Debtors where members of the Ad Hoc Committee have neither Claims nor Interests. To be clear, to the extent that a portion of the proposed administrative expense payment is intended to pay the reasonable compensation for professional services rendered by an attorney (i.e., the fees and expenses of Dewey & LeBouef LLP) together with expenses that are documented and allowable under Section 503(b)(4), Midland does not object to those fees and out of pocket expenses, so long as such payments come from a Debtor where such a claim is appropriate Innkeepers USA Trust - and not another Debtor that happens to have liquidity. However, giving the Ad Hoc Committee members a fee or compensation other than as allowed under Sections 503(b)(3)(D) and 503(b)(4) would be precedential, so Midland must object.15 i. The Debtors Cannot Justify Payment To The Ad Hoc Committee Members Under Either Bankruptcy Rule 9019 Or Section 503(b)16 42. Although described as an agreement, the proposed payment of the

administrative expense claim to the Ad Hoc Committee members is part of an integrated settlement by and among the Debtors and the members of the Ad Hoc Committee. The Ad Hoc
Midland might not oppose to payment of an administrative claim for the Ad Hoc Committee members if the source for payment of such claim is taken directly from and out of any recovery available for the holders of the Innkeepers USA Trust Preferred C Interests. Further, the proposed payment to the Ad Hoc Committee members violates Section 1129(a)(4). Section 1129(a)(4) requires that [a]ny payment made or to be made by the proponent [or] by the debtorfor services or for costs and expenses in or in connection with the case, or in connection with the plan and incident to the case, has been approved by, or is subject to the approval of, the court as reasonable. 11 U.S.C. 1129(a)(4). Neither the Plans nor Disclosure Statement articulate any justification for providing the Ad Hoc Committee members with an administrative claim and the proposed payment is not subject to being approved as reasonable. The Ad Hoc Committee Administrative Claim, therefore, fails to satisfy the requirements of Section 1129(a)(4).
16 15

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Committee Agreement is described in terms that would imply that a settlement of potential litigation occurred. Here, the Debtors have not sought approval of the Ad Hoc Committee Settlement as an independent settlement, but rather are attempting to bypass any such scrutiny by simply folding the settlement into the Plan. Amazingly, the Debtors seek blanket approval without complying with (or even discussing) the requirements of Bankruptcy Rule 9019 regarding settlements. The Debtors cannot escape the scrutiny required by Bankruptcy Rule 9019 simply by including the Ad Hoc Committee Agreement as part of the Plan. See Resolution Trust Corp. v. Best Prods., Co. (In re Best Prods. Co., Inc.), 177 B.R. 791, 794 n. 4 (S.D.N.Y. 1995) affd, 68 F.3d 26 (2d Cir. 1995) (Irrespective of whether a claim is settled as part of a plan pursuant to section 1123(b)(3)(A) of the Bankruptcy Code or pursuant to a separate motion under Bankruptcy Rule 9019, the standards applied by the Bankruptcy Court for approval are the same.); Six W. Retail Acquisition v. In re Loews Cineplex, 286 B.R. 239, 248 n. 13 (S.D.N.Y. 2002) (affirming the bankruptcy courts approval of a settlement agreement contained in a plan where the settlement complied with the requirements of Bankruptcy Rule 9019); In re Drexel Burnham Lambert Group, Inc., 138 B.R. 723, 758-59, 768-69 (Bankr. S.D.N.Y. 1992) (applying Rule 9019 analysis to determine that the settlements embodied in the plan were appropriate). 43. Bankruptcy Rule 9019 permits the approval of a compromise or settlement after

notice and a hearing. Bankr. R. Proc. 9019. Further, a court may not simply defer to a debtor in possessions judgment, but must independently evaluate the reasonableness of a settlement. In re Rosenberg, 419 B.R. 532, 536 (Bankr. E.D.N.Y. 2009). In considering whether to approve a settlement, a bankruptcy court is required to review the reasonableness of the proposed settlement. In re WorldCom, Inc., 347 B.R. 123, 137 (Bankr. S.D.N.Y. 2006).17 In making this
17

In the Second Circuit, Courts look to the following factors noted in Motorola v. Official Committee of Unsecured Creditors (In re Iridium Operating LLC), 478 F.3d 452 (2d Cir. 2007): (1) the balance
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review, the Court should apprise [itself] of facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should [the] claim be litigated. Id. at 138 (quoting Weinberger v. Kendrick, 698 F.2d 61, 74 (2d Cir. 1982)). 44. The Ad Hoc Committee Agreement cannot be approved because a settlement

upon the same terms would not survive scrutiny under Bankruptcy Rule 9019. The Debtor from whom an administrative expense claim is sought must prove that they evaluated the request for payment to the Ad Hoc Committees members and advisors as an administrative expense claim before a settlement providing such payment is appropriate. Thus, the Court must consider the grounds under which the Debtors would be liable for (or immune from) payment of an administrative expense claim to comply with the requirement that the Court should apprise [itself] of facts necessary for an intelligent and objective opinion of the probabilities of ultimate success should [the] claim be litigated. In re WorldCom, Inc., 347 B.R. at 138. 45. Aside from the payment of attorneys fees that might be payable under Section

503(b)(4), the only possible legal predicate for payment of an administrative claim to the Ad Hoc Committee members is pursuant to Section 503(b)(3)(D) which provides for payment of the actual, necessary expensesincurred byan equity security holderin making a substantial contribution in a case under chapter 9 or 11 of this title. 11 U.S.C. 503(b)(3)(D). It bears emphasis that Section 503(b)(3)(D) explicitly reserves payments for substantial contribution to the actual, necessary expenses incurred in making a substantial contribution and not as some
between the litigation's possibility of success and the settlement's future benefits; (2) the likelihood of complex and protracted litigation, with its attendant expense, inconvenience, and delay, including the difficulty in collecting on the judgment; (3) the paramount interests of the creditors, including each affected classs relative benefits and the degree to which creditors either do not object to or affirmatively support the proposed settlement; (4) whether other parties in interest support the settlement; (5) the competency and experience of counsel supporting, and the experience and knowledge of the bankruptcy court judge reviewing, the settlement; (6) the nature and breadth of releases to be obtained by officers and directors; and (7) the extent to which the settlement is the product of arms length bargaining.

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form of fee or compensation to a creditor or interest holder whether on a committee or not. There has been no showing, nor any pleading filed, which would justify any payment from Innkeepers USA Trust in excess of a payment for attorneys fees, third party professional fees or out of pocket expenses that were actually incurred. 46. Ad Hoc Committee members might argue that they acted as financial advisors

to the Ad Hoc Committee. However, if the Ad Hoc Committee sought remuneration for one or more of its member investment firms (beyond the reimbursement of actual, necessary expenses) for its actions to maximize the recovery upon the securities it holds, a ruling approving fees to Committee Members outside Section 503(b) would open the door for others to use in the future and thereby create the possibility for significant abuse. The Debtors must provide some legal authority to support a request for payment of fees or compensation to one or more Ad Hoc Committee members falling within Section 503(b)(D). 47. As noted above, the Debtors cannot satisfy the high standard for providing Ad

Hoc Committee members with any recovery beyond their recovery as preferred shareholders. Without such a showing, any attempt to provide such a claim to the Ad Hoc Committee members must fail. ii. Payment Of The Ad Hoc Committee Administrative Claim By A Debtor Other Than Innkeepers USA Trust Is Improper 48. Even if the payment of an administrative expense claim to the Ad Hoc Committee

members was appropriate, the requirement that the payment come from a debtor other than Grand Prix Holdings, Innkeepers USA Trust, and Innkeepers Financial Corporation is improper. Ad Hoc Committee members hold preferred shares in Innkeepers USA Trust. Specifically requiring that Debtors other than Innkeepers USA Trust pay the administrative claim would

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violate Section 503(b)(3)(D) because the payment would not be made to a party eligible for an administrative claim under such section of the Bankruptcy Code. 49. By definition, the Ad Hoc Committee members are not preferred shareholders of

the Debtor that would be making the payment, and gift plans are not permitted in this Circuit. Dish Network Corp. v. DBSD N. Am., Inc. (In re DBSD N. Am. Inc.), 634 F.3d 79 (2d Cir. 2011). Ad Hoc Committee members may not receive property of the estate belonging to other Debtors because these cases have not been substantively consolidated. See In re Las Torres Dev. LLC, 413 B.R. 687, 698-99 (Bankr. S.D. Tex. 2009) (holding that [t]he administrative expenses of one jointly administered debtor should not be paid out of the other jointly administered debtors cash collateral because joint administration does not affect the substantive rights of claimants or the respective debtor estates and because when cases are jointly administered, as opposed to substantively consolidated, the assets of each joint debtor are property of separate bankruptcy estates); In re Fas Mart Convenience Stores, Inc., 320 B.R. 587 (Bankr. E.D. Va. 2004) (denying request for payment of administrative expense claims from debtors without contractual privity with claimant where claimant only had contractual privity with one debtor and substantive consolidation was not appropriate). Local Rule 9013-1(a) 50. This Objection includes citations to the applicable rules and statutory authorities

as support and a discussion of their application to this Objection. Accordingly, Midland submits that this Objection satisfies Rule 9013-1(a) of the Local Rules for the Southern District of New York and respectfully requests the waiver of the need to file a supporting memorandum of law.

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WHEREFORE, Midland requests that the Court enter an order (i) denying confirmation of the Plans as provided for in this Objection and (ii) granting Midland such other and further relief to which it is entitled. Dated: June 17, 2011 New York, New York HAYNES AND BOONE, LLP

/s/ John D. Penn Lenard M. Parkins (NY Bar #4579124) Mark Elmore (admitted pro hac vice) 30 Rockefeller Plaza, 26th Floor New York, New York 10112 Telephone No.: (212) 659-7300 Facsimile No.: (212) 884-8211 - and John D. Penn (NY Bar # 4847208) Haynes and Boone, LLP 201 Main Street, Suite 2200 Fort Worth, Texas 76102 Telephone No.: (817) 347-6610 Facsimile No.: (817) 348-2300

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