Bondholders Sue Marriott Over Corporate Split
BALTIMORE (AP) _ Marriott Corp. officials deceived former bondholders by secretly planning to split the company in two, an attorney for the bondholders said Monday.
The investors group, led by PPM America, Inc., a Chicago-based financial group, is suing Marriott in U.S. District Court for $18 million in losses plus punitive damages.
A jury will determine whether officials from Bethesda-based Marriott misled investors when they sold $400 million in bonds in the spring of 1992. Within days after Marriott announced plans to restructure in October 1992, the bonds’ value plummeted and was classified as non-investment or ″junk.″
Attorneys for the investors will argue that Marriott officials realized in January 1992 that they had acquired too much real estate and too much debt, causing stock prices to fall. These factors caused company officers to begin looking at spinning off a separate company to ″siphon out the rest of real estate value until it disappeared,″ said Lawrence Kill, an attorney for the bondholders.
″All this was being done behind the backs of their bondholders,″ Kill said Monday in opening arguments. ″You have an obligation to disclose that.″
When Marriott split into Marriott International Inc., a profitable hotel management company, and Host Marriott Corp., which assumed most of the company’s real estate debt, bondholders were left tied to the heavily indebted real estate division.
The $18 million in compensatory damages would make up the difference between the price bondholders paid for the bonds and ″the price they should have paid,″ Kill said.
Arne Sorenson, representing Marriott, argued it is difficult to pinpoint when an idea first occurs to someone. He said the plaintiffs were ″dead wrong″ about when the restructuring was conceived.
″Before they sold bonds they had never even thought of this idea,″ Sorenson said.
U.S. Senior District Judge Alexander Harvey II declined to rule in the case earlier this year, setting the stage for a jury trial.
Each side plans to call at least 10 witnesses in a case that is expected to last three to four weeks.