Marriott wins early round in fray with bondholders


The Marriott Corp. won a round in a Baltimore court yesterday when a U.S. District judge ruled that a group of the company's bondholders may not communicate directly with members of another bondholder group, which reached an out-of-court settlement with Marriott last month.

"We want the court to control communications to the bondholders," Arne M. Sorenson, a Washington lawyer who represents Marriott, said after Judge Alexander Harvey II issued the order.

The order blocks the dissident bondholder group, which is unhappy with Marriott's extensive restructuring plan, from splitting up the group of bondholders that has reached terms with Marriott, Mr. Sorenson said. The dissident group -- led by institutional investor PPM America -- represents institutions that own $123 million in Marriott bonds.

Marriott's original plan, announced in October, called for Marriott to be divided into Marriott International, a hotel management company, and Host Marriott, which would own the company's real estate and airport and toll-road concessions.

Under this plan, Marriott International would have been nearly debt-free, while Host Marriott would have been burdened with nearly all of Marriott's $2.9 billion in debt. The announcement of the plan caused Marriott bonds to plunge 30 percent.

In a concession to the main bondholder group, which owns $400 million in Marriott bonds and is led by the Teachers Insurance & Annuity Association, Marriott agreed to alter its restructuring plan to have Marriott International assume $450 million of debt that originally would have gone to Host Marriott.

Yesterday's court ruling denied the PPM-led group from contacting all Marriott's bondholders through the bond trustee.

Judge Harvey also heard arguments yesterday on a motion by Marriott to dismiss the suit brought by the PPM-group against the Bethesda-based company. The suit alleges that Marriott committed securities fraud by failing to disclose to its bond buyers its "secret" plan to restructure the company.

"This restructuring plan, which was hidden from the public, had devastating consequences for the bondholders," said Lawrence Kill, an attorney for the PPM group.

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