A bankrupt Holiday Inn in downtown Manhattan can’t use chapter 11 to maintain its low-rate mortgage without paying penalty interest linked to its default, a judge ruled in a setback for borrowers seeking to hold on to more affordable loans as interest rates rise, WSJ Pro Bankruptcy reported. Judge Philip Bentley of the U.S. Bankruptcy Court in Manhattan said in this week’s ruling that Golden Seahorse, owner of the 50-story hotel, should pay the default interest and fees charged by its lenders, totaling about $20 million, if it wants to keep its cheaper mortgage as it leaves chapter 11. The judge, however, said that Golden Seahorse can return to his court to argue that its defaults should be excused because under New York state law, the COVID-19 pandemic made it impossible to keep up with its payments. A lawyer for Golden Seahorse, Scott Markowitz, said the company would do so. Golden Seahorse arranged a 10-year, $137 million loan in 2018 and had been current until May 2020, when it failed to make a payment after the hotel closed because of the pandemic. Its lenders began charging default interest and Golden Seahorse filed for bankruptcy in November to avoid a seizure.
