A bondholder lawsuit against Marriott Corp. can advance to the pretrial discovery stage after a federal judge last week upheld most of the bondholders' claims.
Marriott had filed a motion on Feb. 10 to dismiss the suit brought by a group of bondholders led by PPM America Inc., according to Robert T. Souers, a Marriott spokesman.
In U.S. District Court in Baltimore late Thursday, Judge Alexander Harvey 2d upheld the suit's first four counts, but granted Marriott's motion to dismiss the fifth, which alleged negligent misrepresentation.
In addition to dismissing the fifth count, the court also rejected a move by the PPM bondholders to allow purchasers of bonds before April 1992 to seek recovery under the suit.
Souers said Marriott is confident that the remaining counts will eventually be decided in its favor.
A spokesman for the bondholders' group said the negligent misrepresentation charge was really "a very weak, technical claim" that pertained to only a small percentage of the suit.
"The core securities fraud and common law fraud charges have merit, the judge says," the spokesman added. The exclusion of bondholders who purchased before April 1992 is also a relatively minor point, he said, because the suit primarily focuses on $400 million of debt that was sold starting in April 1992.
The bondholders are suing Marriott over the company's Oct. 5 spinoff plan, which a court document says was code named Project Chariot. Under the plan, Marriott would split into two companies, saddling one, Host Marriott, with most of the debt.
The PPM bondholders claim Marriott must have been contemplating the spinoff when it sold them their bonds, but failed to disclose it.
In the memorandum and order setting forth the judge's decision, the PPM bondholders are said to allege that Marriott began considering the restructuring as early as January 1992. The purpose, they say, was to increase the value of the "substantial" equity interests of some Marriott executives also named in the suit at bondholders' expense.
According to the document, the PPM bondholders also claim that one of the defendants, Marriott executive Stephen F. Bollenbach, was hired in February 1992 specifically for his "extensive" experience in restructuring corporations.
Last month, Marriott reached agreement on a revised restructurcing plan with other institutional bondholders representing about $400 million of its debt, as well as representatives of some class action litigation brought against the company, Souers said.
In other news, a Delaware court confirmed USG Corp.'s prepackaged bankruptcy plan on Friday, and the wallboard company expects to be out of Chapter 11 by May 6.
"The two-year restructuring process has finally come to an end," said Eugene B. Connolly, the Chicago-based company's chief executive officer.
"With a supportable, de-leveraged capital structure, we can now turn our full attention to capitalizing on the recovery currently under way in the construction industry," Connolly said.
Brian Bogart, a group vice president at Duff & Phelps/MCM Investment Research Co., said the outlook for the industry appears promising.
"Clearly the outlook for gypsum has improved and we expect further improvement," Bogart said.
In secondary activity Friday, spreads on high-grade bonds ended unchanged in quiet trading. High-yield bonds were also quiet and unchanged. Gainers included some Stone Container Corp. bonds, which ended about a point higher.
New issues
Federal National Mortgage Association issued $400 million of 5.20% medium-term notes due 1998 and priced initially at par. Noncallable for three years, the notes were priced to yield 19.5 basis points over comparable Treasuries. Goldman, Sachs & Co. was the sole manager of the offering.
Tiphook Finance issued $200 million of 7.125% notes due 1998. The noncallable notes were priced at 99.688 to yield 7.20%, or 220 basis points over comparable Treasuries. Moody's Investors Service rates the offering Bal, while Standard & Poor's Corp. rates it BBB-minus. Lehman Brothers was the lead manager.
Pittsburgh National Bank-Kentucky issued $200 million of 3.230% bank notes due 1994. The noncallable notes were priced initially at par to yield 1 0 basis points over the year Treasury bill on a bond equivalent basis. Moody's rates the offering Aa3, while Standard & Poor's rates it A-plus. Goldman Sachs was the sole manager.
Beverly Enterprises issued $20 million of 8.75% first mortgage bonds due 2008 at par. Noncallable for four years, the offering was not rated by either Moody's or Standard & Poor's. J.C. Bradford & Co. managed the offering.
