Fairmont San Jose hotel bankruptcy reaches critical milestones
SAN JOSE – The Fairmont San Jose hotel bankruptcy case has reached critical milestones as uncertainties swirl around a specific date for the reopening of the iconic downtown hotel and the viability of a plan to reorganize its finances.
On March 5, the Fairmont San Jose closed its doors and filed for bankruptcy to reorganize its finances, with the hotel owner saying at the time that the hotel would reopen in two to three months.
The initial 60-90 day deadline indicated a reopening as early as early May or as late as around mid-June, based on claims made by hotel owners at the time of Chap. 11 filing for bankruptcy.
Now, however, court documents have emerged that later suggest reopening the downtown San Jose double-tower hotel doors.
The indication of a later deadline – which now points to mid to late summer – has emerged with the filing by the owners of Fairmont of an amended statement regarding its business operations, assets and liabilities. The new disclosures were filed with the U.S. bankruptcy court on May 11.
Approval of the reorganization plan is considered a necessary prerequisite for the resumption of hotel activities. This is because the plan must be in effect in order to provide the foundation necessary to put the hotel back on a stable financial footing.
“If the plan is confirmed, the debtors expect the effective date to be in July or August,” the hotel owners said in the court filing.
There are many critical hurdles that hotel owners will need to overcome in order to successfully reorganize hotel finances.
Among the significant challenges facing the bankrupt hotel owner:
– Owners must be successful in finding a new senior hotel manager who will operate the downtown San Jose hotel under a new brand.
– The new hotelier must agree to provide at least $ 45 million in cash infusion to help stabilize the hotel’s finances.
– Hotel owners must obtain court approval to terminate the existing hotel management and operation contract with Accor Management US, formerly Fairmont Hotel & Resorts.
It also became clear that the owner of the bankrupt hotel, Eagle Canyon; and the hotel operator, Accor Management, became adversaries over a one-year period starting in March 2020, around the time the coronavirus rocked the finances of Fairmont and hotels around the world.
Accor Management has accused the owner of the Eagle Canyon Capital hotel of not providing sufficient financial support to hotel operators until revenues and occupancy levels can return to pre-COVID levels.
“This position has led to a lot of litigation,” said Paul Tormey, regional vice president of Accor, in a statement to the bankruptcy court.
The owner of the Fairmont claims that Accor Management did not sufficiently help the owner of the hotel to cope with the collapse of the finances of the Fairmont San Jose.
“The business relationship between Accor Management and hotel ownership is irreparable,” the hotel owners said in court documents.
A committee of unsecured creditors raised questions about the realism and feasibility of the declaration filed by the hotel owners. The disclosure statement is supposed to detail the hotel’s liabilities, assets and business activities. Creditors need a detailed statement so that they can make an informed decision on whether to support the reorganization plan.
One of the crucial elements of the hotel’s overall financial stabilization plan is the marketing effort to identify a new hotel management company that would also be willing to provide the hotel with a large portion of the funding. to support hotel operations.
“The reorganization plan assumes that the commercialization process will allow debtors to secure new financing of at least $ 45 million, also known as a ‘mezzanine loan’, from a major national hotel brand,” he said. declared the creditors committee in a court file. “This process, however, is not over.”
The owners of the hotel, however, countered that the best chance for accommodation was to follow the current plan and find a new management team.
“The hotel brands that have expressed interest in the hotel thus far generally offer better marketing prospects for the hotel, broader guest and booking pipelines, and better positioning to capture a greater share of the hotel. convention activity as COVID-19 restrictions continue to shrink, ”the hotel owners said in a court filing.
And hotel owners envision a steady return to financial health if the plan is approved by the court and a manager – and the $ 45 million injection – emerges.
“The occupancy rate is expected to increase through 2021 and 2022 and reach pre-pandemic levels by the end of 2022,” the hotel owners said in a court filing on May 11.