Interstate Hotels Corporation (Nasdaq:IHCO) today announced that it has entered into an agreement whereby an investor group, led by Lehman Brothers, will make a $30 million investment into the Company in the form of equity and convertible debt. Interstate also has signed a joint venture agreement with the investor group whereby the Company will invest $25 million of the new capital, along with capital from the investor group, to selectively acquire hotel properties that will be managed by Interstate. The Company and the investor group believe the joint venture partnership can acquire up to $300 million of hotel assets.
Under the agreements, the Company will issue to the investor group (CGLH PARTNERS I LP) $5 million of preferred stock and $25 million in subordinated notes. The preferred stock and notes each have 8.75% per annum coupon rates and are together convertible by the investor group into up to 49% of the Company’s then-outstanding common stock at a $4.00 per share conversion rate. The preferred stock and notes mature in 2007.
As part of the transaction, the Company also expects to close on a $25 million senior secured revolving credit facility arranged by Lehman Brothers Holdings Inc. The Company expects to draw upon the facility to make minority investments to obtain management contracts.
In connection with the investor group investment, the Company has agreed to acquire from Wyndham International, Inc. its 55% non-voting economic interest in Interstate Hotels, LLC, a subsidiary of the Company.
The transactions relating to the issuance of the preferred stock and notes are subject to stockholder approval and are expected to close in the fourth quarter.
Interstate Hotels Corporation operates approximately 160 hotels with more than 30,000 rooms in 37 states in the United States as well as Canada, the Caribbean and Russia. For more information, visit www.interstatehotels.com.
NOTE: Certain matters discussed within this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it cannot give assurance that its expectations will be attained. Factors that could cause actual results to differ materially from expectations include financial performance, real estate conditions, execution of hotel development programs, changes in the availability of additional management contracts, leases or acquisitions, changes in local or national economic conditions and other risks detailed from time to time in the Company’s reports filed with the SEC.