Morgans Hotel Group reaches deals with Yucaipa

NEW YORK (AP) -- Morgans Hotel Group Co. said Monday that it has reached agreements with The Yucaipa Cos. that will help significantly lower its debt.

The hospitality management company said the deal completes a 15-month exploration process by a special committee of its board to review strategic options. The review included considering a possible sale of the entire company, the potential sale of the Delano South Beach resort in Miami and other strategic alternatives.

Morgans said that Yucaipa's interests in its convertible notes, preferred stock and stock warrants will be canceled. In exchange, Yucaipa will receive Morgans' ownership interests in Delano South Beach and The Light Group. Morgans will also receive $6.5 million in cash for its leasehold interests in three restaurants at Mandalay Bay in Las Vegas that will be run by The Light Group. Yucaipa will pay Morgans' remaining note obligations with respect to the acquisition of such leaseholds.

Morgans said that it will still run Delano South Beach as part of a long-term management deal. The company will also start a $100 million rights offering at $6 per share to stockholders. The offering will be backstopped by Yucaipa at no fee should the rights not be fully exercised. Morgan will use proceeds from the offering to retire a credit facility secured by Delano South Beach. The remaining proceeds of $65 million will be for general corporate purposes and investment in new hotel contracts.

Morgans, which is based in New York, said the transactions will help lower its debt and preferred stock obligations by $230 million.

Morgans CEO Michael Gross said in a statement that the company anticipates first-quarter systemwide revenue per available room at hotels open at least a year will be up 16 percent to 18 percent, which would be the highest growth rate since 2007's first quarter.

Shares of the company last traded at $5.92. Over the past year, shares have traded between $3.73 and $6.76.