On June 28, John Q. Hammons Hotels & Resorts announced that the Revocable Trust of John Q. Hammons (JQH Trust) and its related affiliates (the affiliated group) have filed voluntary petitions in order to restructure under Chapter 11 of the U.S. Bankruptcy Code. The affiliated group includes the borrowing entities for several CMBS loans. In total, the current outstanding principal balance for ten transactions secured by CMBS loans approximates $690 million.
Kroll Bond Rating Agency rated four CMBS transactions in which two loans were involved, one of which was split across three of the four CMBS deals, so the firm is monitoring the situation to determine any ratings effect. Kroll notes that properties underlying the CMBS conduit loans are performing well.
Based on servicer-provided information for the year ended 2015, the Hammons Hotel Portfolio was secured by a $250.8-million CMBS loan and its net cash flow increased 12% since securitization. Debt service coverage (DSC) improved to 1.88 from 1.68, and the debt yield increased to 12.1% from 10.7% during the same period. The Chateau on the Lake loan had a DSC of 1.99 and a debt yield of 11.9% at securitization. Based on fiscal 2015 servicer data, the DSC increased to 2.16 and debt yield to 13.1%.
The reason for the bankruptcy was unrelated to the cash flow performance of the assets. According to several news reports, JQH Trust and the affiliated group declared Chapter 11 bankruptcy to help deal with ongoing litigation regarding a third party (JD Holdings, LLC) right of first refusal to purchase certain sponsor-owned hotel properties.