Hammons Hotels CEO: 'JQH is financially stable,' bankruptcy a strategic response to litigation
The CEO of Springfield-based John Q. Hammons Hotels & Resorts said Monday that the company filed for Chapter 11 bankruptcy protections over the weekend so as to better deal with its ongoing legal difficulties, and that she does not anticipate its business operations being disrupted.
CEO Jacqueline Dowdy said the company was "financially stable" and able to pay its bills. No hotels are closing, employees will continue receiving checks and benefits and customers shouldn't notice a thing, the company's chief counsel said.
What the bankruptcy filing does do — at least temporarily — is put the brakes on litigation involving the company, including a trial in Delaware that had been scheduled to start in late July.
"We want to ensure that the company Mr. Hammons built over 50 years and the financial and philanthropic commitments that he made have the opportunity to continue to thrive," Jacqueline Dowdy said at a morning news conference. "A financial restructuring associated with Chapter 11 will help to provide the necessary framework and the safeguards to let us be there for our creditors, lenders, employees, guests and members of the community who benefit from the continued generosity of our legendary hotelier."
"We foresee this being a strategic and necessary move in the best interests of those to which we have financial responsibility," Dowdy said. "We do not feel the approach will adversely affect our guests, who will continue to enjoy exceptional stays at our award-winning hotels across the country.”
The legal difficulties facing the Revocable Trust of John Q. Hammons, John Q. Hammons Hotels and related companies pertain to a 2005 agreement, which Dowdy referred to as "a complicated and multi-step transaction" in which "Hammons agreed to sell the JQH's portfolio of 43 publicly-owned hotels, believing that his trust would ultimately receive more than $335 million." JQH Senior Vice President and General Counsel Gregg Groves said the trust never received that money.
The 2005 agreement has been characterized differently by Hammons' opponents. In court filings, entities associated with investor Jonathan Eilian have described the transaction as one in which a line of credit was extended to Hammons so he could take the publicly-traded company he led private. In earlier lawsuits, Eilian and related companies have claimed Hammons Hotels has failed to comply with the terms of the deal.
In October 2014, the Delaware Court of Chancery upheld various aspects of the 2005 agreement between Hammons and entities owned by Eilian, including a requirement that the 35 hotels currently owned by Hammons' trust be sold for cash by the later of the two deadlines. Attorneys for the Eilian entities have also indicated the investor had an option to purchase the hotels at a 20 percent discount.
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Groves said Monday it was the company's belief that there were two events that would have triggered the right of first refusal, and that those events have not occurred. Asked if the 2005 agreement was a tactical error on the part of the company, Groves — who indicated he was not involved with the 2005 agreement — said it was not.
"I will tell you this: You're never going to get me to second guess what Mr. Hammons did," Groves said. "His legacy is absolutely incredible."
John Q. Hammons died in May 2013 at the age of 94. In addition to building a far-reaching company, he was also a major philanthropist in the Springfield region, and his name adorns some of the city's most prominent facilities.
Groves said Monday that it will be up to the bankruptcy court to determine whether the Delaware court proceedings, currently stayed, could proceed in the future.
The Wall Street Journal reported Sunday that in a pretrial hearing last fall, a vice chancellor with Delaware’s court said the Hammons trust and companies were “serial and ongoing breachers“ that “have made zero efforts” to sell the hotels. The outlet also said that the Delaware court last fall issued an order barring the Hammons trust from taking any action outside of "the ordinary course of business" with respect to the hotels.
Groves' Monday comments indicated the decision to file for bankruptcy would likely be scrutinized by the court and the company's legal opponents.
"What the court may deem as 'outside the ordinary course of business' and what we may deem as 'outside the ordinary course of business' may be two different things," Groves said.
John Q. Hammons Hotels and affiliated companies have more than 4,000 employees, Groves said Monday. The company owns and operates 35 hotels in 16 states. It managed the additional 43 hotels involved in the 2005 agreement until sometime last year, he said.
Groves said the company is looking at hiring an investment advisor over the next several weeks. He also praised his boss, CEO Dowdy, calling her "an extremely strategic thinker."
"Since Jackie Dowdy took over as the leader in 2010, John Q. Hammons Hotels and Resorts has been in the best financial position that it has ever been in," Groves said.