Lodging Enterprises, LLC filed an amended disclosure statement on October 16, 2025, outlining a plan of liquidation that would conclude the company's 16-month bankruptcy case following a $91 million credit bid by its prepetition secured lenders. The 114-page disclosure statement, filed with the United States Bankruptcy Court for the Southern District of Kansas, details how the operator of 44 Wyndham-branded hotels and 27 restaurants will wind down its operations after completing a comprehensive marketing and sale process.
The Kansas-based hospitality company, which specialized in serving transportation, railroad, and construction workers across 22 states, filed for Chapter 11 protection on June 26, 2024, after disputes with its lenders left it without access to operating funds. The proposed plan provides for a meaningful recovery to general unsecured creditors which the company estimates is significantly better than the zero recovery such creditors would receive in a Chapter 7 liquidation.
Specialized Business Model Faces Financial Distress
Lodging Enterprises carved out a unique niche in the hospitality industry with its proprietary "dark-and-quiet" hotel construction designed specifically for transportation workers needing uninterrupted rest at any hour. The company's properties featured sound-dampening materials, blackout drapes, electronic sensors to prevent service interruptions, and individual HVAC units that could bring rooms to desired temperatures in five minutes or less.
On the petition date, the debtor owned and operated 44 hotels and 27 restaurants supporting employment of over 900 hospitality professionals through Avantic Lodging Enterprises, Inc., a non-debtor affiliate management services company. The company maintained substantial contracts with major railroad companies under lodging facility agreements requiring quality food and lodging to be available 24-7, 365 days per year.
The debtor's sole member is VCM Lodging Enterprises, LP, which acquired the company's equity interests in 2019 using proceeds from a $145 million loan from prepetition secured parties. As of the petition date, the company owed approximately $127.6 million under this loan agreement.
Cascade of Default Notices Triggers Bankruptcy
The path to bankruptcy began on April 24, 2024, when special servicer Rialto Capital Advisors, LLC sent an initial notice of default alleging that Lodging Enterprises had engaged in a "systematic effort" to divert approximately $13.26 million from local depository accounts at individual hotels and restaurants away from the cash management account controlled by the lenders. The lenders demanded repayment by May 6, 2024.
The debtor disputed these allegations in a May 22, 2024 response, arguing that the special servicer was improperly characterizing certain funds, including employee tips and sales taxes, as diverted "rents." The company explained that funds properly characterized as rents had been used to cover legitimate operating expenses to protect the lenders' collateral, and that the $13 million figure ignored legitimate operating expenses falling within a gap in the cash management agreement.
On May 31, 2024, the special servicer sent a second notice of default raising additional issues. The servicer claimed that the debtor's audited financials reflected approximately $118.7 million in unpermitted debt from affiliate loans and that the company had made prohibited advances to affiliates exceeding $101.8 million. The servicer also alleged multiple breaches of financial reporting covenants.
The debtor again disputed these claims, explaining that the book entries were attributable to an "innocuous treasury management strategy" and reimbursement of management expenses. Despite proposing various corrective actions and offering to grant the lenders additional security interests, negotiations reached an impasse.
On June 18, 2024, Lodging Enterprises sent a forbearance proposal offering to engage a national broker to liquidate the portfolio in exchange for access to necessary liquidity. However, the prepetition secured parties rejected this proposal and informed the debtor they would not release funds sufficient to cover July operating expenses, including the July 2 payroll deadline. With no funds to pay personnel or sustain operations, the company filed for Chapter 11 protection.
Extensive Marketing Process Yields Multiple Bidders
Following approval of bidding procedures on April 21, 2025, the debtor launched an extensive marketing and sale process for its remaining portfolio. The company had previously sold four underperforming properties: the Nashville Hotel for $4.5 million in August 2024, and three additional properties in Arizona, North Dakota, and Missouri for an aggregate $4.48 million in January 2025.
CBRE, Inc., serving as the debtor's real estate consultant and broker, conducted a comprehensive campaign that included developing a 96-page offering memorandum, conducting site visits to representative properties, and establishing a virtual data room populated with over 2,300 files. The marketing effort reached over 15,152 potential bidders through targeted electronic outreach.
The response was robust and international in scope. Ultimately, 323 potential bidders executed non-disclosure agreements and gained access to the virtual data room, with 303 actually accessing it. CBRE received inquiries from interested parties in all 50 U.S. states as well as from Canada, South America, Europe, Asia, and Africa. Prior to the auction, ten parties submitted eleven purchase and sale agreements—seven for the entire portfolio and four for partial portfolios.
After careful evaluation, the debtor determined that five of the full portfolio bids qualified for participation in the September 25, 2025 auction. All five qualified bidders attended the competitive auction, which proceeded through multiple rounds of bidding.
$91 Million Credit Bid Prevails at Auction
At the conclusion of the auction, the prepetition secured parties emerged as the winning bidder with a credit bid of $91 million of outstanding indebtedness under the loan agreement. This credit bid, made pursuant to Section 363(k) of the Bankruptcy Code, exceeded the $86 million cash bid submitted by American Hotel Income Properties REIT Inc., which was selected as the back-up bidder.
The credit bid mechanism allows secured creditors to bid the amount of their debt rather than cash, and the debt bid is credited against what the debtor owes. In this case, the prepetition secured parties' claim was estimated at approximately $113.2 million as of a December 6, 2025 payoff date, meaning the $91 million credit bid would substantially reduce—but not fully satisfy—the secured claim.
The auction results represented the culmination of months of negotiations and strategic pivoting by the debtor. Originally, the company had explored a potential plan of reorganization centered on reinstating the loan and pursuing litigation against the prepetition secured parties. The debtor also engaged in extended negotiations over an out-of-court settlement that would have required the company's equity holders to raise sufficient capital to pay down a portion of the indebtedness and ensure adequate post-restructuring capitalization. However, when equity holders were unable to obtain a binding commitment for additional capital on acceptable terms, the company shifted to pursuing the asset sale strategy.
Critical Settlement Ensures Creditor Recovery
A key element enabling the proposed plan is the Portfolio Sale Settlement Agreement approved by the bankruptcy court on April 21, 2025. This settlement resolved disputes between the debtor and the prepetition secured parties regarding the validity of the alleged defaults and associated default interest.
Under the settlement, the prepetition secured parties agreed to consent to the use of cash collateral through the end of 2025 under a budget deemed sufficient for a robust marketing process. Critically, the lenders also agreed to share a portion of the sale proceeds with other creditors through the "Claims Payment" mechanism.
The Claims Payment provides for distribution of portfolio sale proceeds to pay, in order: (1) all allowed priority claims, including taxes owed to governmental authorities; (2) all allowed administrative expense claims, including fees of estate professionals through conclusion of the case; (3) all other allowed secured claims; and (4) 10% of the remaining proceeds to pay allowed general unsecured claims.
The settlement addressed concerns raised by the Official Committee of Unsecured Creditors by including a provision that preserves the committee's rights to challenge the prepetition secured parties' lien rights if the 10% distribution proves insufficient to pay at least $5.24 million or the total amount of allowed unsecured claims, whichever is less. If the distribution meets this threshold and provides sufficient funds, the committee's motion for standing to prosecute certain causes of action will be deemed denied with prejudice.
Plan Treatment Provides for Orderly Wind-Down
The proposed amended plan of liquidation classifies claims into five classes and provides for the following treatment:
Class 1 – Other Priority Claims: This unimpaired class consists of priority claims under Sections 507(a)(4), (5), (6), (7), and (9) of the Bankruptcy Code, excluding administrative and priority tax claims. These claims will be paid in full in cash on the effective date. Holders are presumed to accept the plan and are not entitled to vote.
Class 2 – Other Secured Claims: This unimpaired class will receive either payment in full in cash equal to the value of their collateral, return of their collateral, or other treatment rendering the claim unimpaired. These claimholders are presumed to accept and cannot vote.
Class 3 – Prepetition Secured Parties' Claims: This impaired class is entitled to vote on the plan. The prepetition secured parties' claim is deemed allowed in an amount reasonably agreed upon pursuant to the settlement agreement, reduced by the amount satisfied through the $91 million credit bid. The special servicer, acting on behalf of the prepetition secured parties, will receive any residual cash remaining after all other distributions. Based on the credit bid amount, no surplus residual cash is expected.
Class 4 – General Unsecured Claims: This impaired class is entitled to vote. Each holder of an allowed general unsecured claim will receive its pro rata share of the Claims Payment from the General Unsecured Claim Reserve Account. The debtor will establish and fund this reserve account with an amount reasonably agreed upon to pay all allowed general unsecured claims in full, including reasonably estimated amounts for rejection damage claims.
Class 5 – Equity Interests: This impaired class consists of all equity interests in the debtor. All equity interests will be cancelled and extinguished on the effective date, with holders receiving no distribution. This class is deemed to reject the plan and is not entitled to vote.
Administrative claims, professional fee claims, and priority tax claims are unclassified and will be paid in accordance with the plan's terms. Professional fees will be paid from a Professional Fee Escrow Account funded with cash equal to the estimated amount of such claims.
Plan Administrator to Oversee Wind-Down
The plan provides for appointment of a Plan Administrator who will oversee all aspects of the post-effective date wind-down. The Plan Administrator will have broad authority to control and effectuate the claims reconciliation process, make distributions to holders of allowed claims, manage remaining assets, prosecute or settle retained causes of action, and ultimately dissolve the debtor.
The debtor will establish three segregated accounts to implement the plan: (1) the Professional Fee Escrow Account, (2) the General Unsecured Claim Reserve Account, and (3) the Wind-Down Account. The Post-Effective Date Budget, funded from the debtor's cash, will ensure payment in full of the Claims Payment, the Wind-Down Amount, and the Professional Fee Escrow Amount.
All of the debtor's remaining assets, including retained causes of action, will vest in the Post-Effective Date Debtor on the effective date. The plan preserves all causes of action not transferred to the purchaser or released under the plan for later adjudication by the Plan Administrator. Any proceeds from prosecution or settlement of causes of action against the debtor's insiders will be deposited into the General Unsecured Claim Reserve Account to pay unsecured claims until all such claims are paid in full.
After payment of all allowed administrative claims, professional fee claims, priority tax claims, other priority claims, other secured claims, and plan administration expenses, and after the deadline for filing rejection damage claims, any remaining unused funds will be remitted to the prepetition secured parties as residual cash.
Liquidation Analysis Shows Superior Recovery
The disclosure statement includes a liquidation analysis demonstrating that the plan provides superior recoveries compared to a hypothetical Chapter 7 liquidation. The analysis assumes conversion to Chapter 7 as of November 20, 2025, after substantially all assets have been sold through the sale transaction.
Under the Chapter 7 scenario, the analysis assumes the Chapter 7 trustee would be denied use of cash collateral by the prepetition secured lender. With gross assets of $9.7 million to $11.4 million (primarily cash on hand and accounts receivable), and no meaningful liquidation of operating assets, the analysis shows:
- Class 1 (Other Priority Claims): 0% recovery under Chapter 7 versus 100% under the plan
- Class 2 (Other Secured Claims): 100% recovery under both scenarios
- Class 3 (Prepetition Secured Parties): 27.5% to 32.7% recovery under Chapter 7 versus 100% credit bid satisfaction under the plan
- Class 4 (General Unsecured Claims): 0% recovery under Chapter 7 versus 100% recovery under the plan
The analysis emphasizes that in a Chapter 7 liquidation, holders of allowed general unsecured claims would not receive the material benefits of the Portfolio Sale Settlement Agreement and the related Claims Payment. Instead, they would receive only whatever benefits a Chapter 7 trustee could obtain by pursuing litigation against the prepetition secured parties, which the debtor believes would be far less than the distributions under the proposed plan.
The prepetition secured parties would face a significant deficiency claim of $21.1 million to $22.8 million in Chapter 7, receiving only 27.5% to 32.7% of their secured claim rather than the full credit bid satisfaction provided under the plan.
Key Dates and Next Steps
The disclosure statement sets forth the following critical dates in the confirmation process:
- October 20, 2025: Sale hearing to consider approval of the purchase and sale agreement with the prepetition secured parties
- November 14, 2025: Voting deadline (4:00 p.m. Prevailing Central Time) and Voting Record Date
- October 14, 2025, 4:00 p.m. Central Time: Objection deadline for confirmation
Classes 3 and 4, which are impaired under the plan, are entitled to vote to accept or reject it. Class 3 consists of the prepetition secured parties' claim, while Class 4 comprises general unsecured claims. Classes 1 and 2 are unimpaired and presumed to accept. Class 5 equity interests are deemed to reject due to receiving no distribution.
The plan conditions precedence to confirmation on entry of final sale orders and approval of the disclosure statement. Conditions to the effective date include execution of the Plan Administration Agreement, funding of the required reserve accounts, consummation of the sale transaction, and payment of all statutory fees due prior to the effective date.
If any impaired class votes to reject the plan, the debtor will seek nonconsensual confirmation under Section 1129(b) of the Bankruptcy Code, commonly known as a "cramdown." The disclosure statement indicates the debtor believes the plan satisfies all requirements for confirmation, including the "best interests" test, feasibility, and—if necessary—the "fair and equitable" standard for cramdown confirmation.
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