Hearing Date: November 10, 2010 at 10:00 a.m.

Lee S. Attanasio SIDLEY AUSTIN LLP 787 Seventh Avenue New York, NY 10019 (212) 839-5300 (tel) (212) 839-5599 (fax) Attorneys for Appaloosa Investment L.P. I, Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred Master Ltd. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------x In re : : Innkeepers USA Trust, et al., : : Debtors. : ------------------------------------------------------x

Chapter 11 Case No. 10-13800 (SCC) Jointly Administered

OBJECTION OF APPALOOSA INVESTMENT L.P. I, PALOMINO FUND LTD., THOROUGHBRED FUND L.P., AND THOROUGHBRED MASTER LTD. TO DEBTORS MOTION FOR ENTRY OF AN ORDER EXTENDING EXCLUSIVITY PERIOD Appaloosa Investment L.P. I and three other funds represented by the same fund manager, Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred Master Ltd. (collectively, Appaloosa or the Appaloosa Funds), all parties in interest in these cases, by and through their counsel, respectfully file this objection (the Objection) to the Debtors Motion for Entry of An Order Extending the Exclusivity Period (the Exclusivity Motion). The Exclusivity Motion requests, pursuant to section 1121 of title 11 of the United States Code (the Bankruptcy Code), a 120-day extension of the exclusive periods during which only the abovereferenced debtors (the Debtors) may file a chapter 11 plan and solicit acceptances of any such plan. In support of the Objection, Appaloosa respectfully represents the following:

BACKGROUND 1. On July 19, 2010 (the Petition Date), simultaneously with the commencement

of these cases, the Debtors filed a motion (the PSA Motion) to assume a Plan Support Agreement (the PSA) with Lehman ALI Inc. (Lehman). Pursuant to the PSA, if approved, the Debtors would have been required to file a plan of reorganization by September 2, 2010, whose principal terms provided that, in satisfaction of its debt, Lehman would receive 100% of the issued and outstanding shares of common stock of all ninety-two debtors (not just those debtors whose assets secured Lehmans debt), while the remaining property-level lenders would receive secured notes with a value not less than the value of the collateral securing their prepetition debt, which, in the case of Midland Loan Services, Inc. (Midland), contemplated a $550 million note in respect of the $825 million secured claim for which it acts as special servicer. Separately, but as a clear component of the plan of reorganization contemplated by the PSA, Lehman agreed to sell 50% of the equity it would receive to Apollo Investment Corporation (Apollo) at a fixed price of $107 million. 2. During the hearing on the PSA Motion (the PSA Hearing), the Debtors witness

conceded that the Debtors had been in negotiations with Lehman since April 2010, but had not shopped the plan term sheet and had no intentions of doing so (PSA Hearing Transcript, Sept. 1, 2010, p. 417:18-23), that the Debtors investment banker was told not to pursue other bidders or transactions (Tr. 418:5-12), and that the Debtors had not permitted parties other than Lehman to conduct due diligence (Tr. 427:12-16). 3. On September 1, 2010, in the face of substantial objections from virtually every

creditor constituency other than Lehman, and based upon an evaluation of an exhaustive

evidentiary record, the Court denied the PSA Motion, finding that the Debtors had all but ignored their fiduciary duties and questioning the Debtors honest interest in exercising due care. Tr. 425:19-21. 4. On August 30, 2010, Midland filed a Motion to Terminate the Debtors

Exclusivity (the Midland Motion), and attached thereto a third party restructuring proposal submitted to Midland by Five Mile Capital Partners LLC (Five Mile). On September 14, 2010 Wells Fargo Bank, National Association (Wells Fargo) filed a Motion to Terminate Exclusivity Period for Filing a Chapter 11 Plan and Disclosure Statement and Joinder to Midlands Motion (the Wells Fargo Motion and, together with the Midland Motion, the Motions to Terminate Exclusivity). The Motions to Terminate Exclusivity were both filed pursuant to section 1121 of the Bankruptcy Code, and sought termination of the exclusive right of the Debtors to file a plan of reorganization and to solicit acceptances of any such plan. 5. On October 27, 2010, almost two months after the PSA Hearing, the Debtors filed

the Exclusivity Motion, seeking to extend the period of exclusivity an additional 120 days through and including March 16, 2011, and extending the exclusive period to solicit acceptances of a chapter 11 plan through and including May 15, 2011. Pursuant to the Bankruptcy Code, the Debtors original period of exclusivity expires on November 16, 2010. OBJECTION 6. As this Court has stated, a debtors exclusive period was intended by Congress to

provide for an opportunity for the debtor to negotiate with its constituents and reach a consensual plan. Tr., p. 423:2-5. It was not intended to be used as a tool by which a debtor can cling to control over a bankruptcy proceeding to the detriment of its creditors. This balance is codified in section 1121(d) of the Bankruptcy Code, which affords a debtor a set term of exclusivity, that

may be extended only if the court finds cause to do so. The burden to establish such cause falls squarely on the Debtors, who, in this case, have failed to demonstrate a sufficient justification for providing them additional time to propose a consensual plan. 7. While the Debtors clearly are no longer bound by the restrictive and punitive

terms of the PSA, the Debtors actions leading up to and following the filing of the PSA Motion evidence a focus on a single path that is clearly not in the best interests of the vast majority of their creditors. When the opposition of such creditors was voiced in near unison, the Debtors determined not to reevaluate their decision, or open the process, or even consider the alternatives, but instead to fight at substantial cost to the estates. As such, the history of these cases clearly does not support the further extension of the benefits that exclusivity affords a debtor, benefits that the Debtors squandered while proposing and then litigating the PSA Motion. 8. No additional support for an extension can be found in the Debtors articulation of

their now-contemplated plan process. Despite the steps the Debtors say they have taken following the PSA Hearing, they appear to be on virtually the same path as they have been since negotiations began with Lehman six months ago. Having wasted the pre-petition months as well as the initial months of the bankruptcy on the PSA - only for the Court to squarely reject it (and to strongly criticize the process by which it was pursued) - the Debtors have failed to heed this Courts admonition to fulfill their fiduciary duties to conduct a plan process without the burdening restrictions of the PSA. Tr. 428:9-13. More than two months later, the Debtors have not offered any evidence that they have progressed towards the development of a plan. Certainly, the Debtors congratulate themselves for the limited steps that have been taken since the PSA Hearing, such as holding meetings with key stakeholders, providing creditors access to an online data room, and the creation of a committee of independent trustees - a process itself

subject to substantial controversy.1 While these are welcome gestures, at least some of them were specifically court-ordered, all of them should have occurred from the beginning consistent with the Debtors fiduciary obligations, and none of them have led to the development of any type of plan, or even plan structure, that could give this Court cause to further extend the exclusivity period. 9. Importantly, the Debtors repeatedly stress the need for time because of their

desire to formulate a plan that will effect an enterprise-level restructuring, explaining only that any other type of plan does not provide the same benefits. Exclusivity Motion, p. 9. The only conclusion that can be drawn from this construct is that the Debtors are continuing to pursue, as their primary focus, a plan structure that could provide value to Apollo, likely to the detriment of creditors. This is the only reasonable conclusion because, in fact, there is no enterprise in these estates: the Debtors are separate and independent special purpose entities that obtained financing in two primary property portfolios (as well as separate, individual mortgage debt); the entities have few employees, as their operations are handled by an outside management company; as a result, there are also few trade creditors; and any synergies and economies of scale that may exist, exist within the hotel portfolios. The notion that the Debtors operate an

The Debtors Motion for the Entry of an Order Pursuant to Section 363 of the Bankruptcy Code (I) Approving the Debtors Undertaking to Compensate Fried, Frank, Harris, Shriver & Jacobson LLP as Counsel to the Independent Committee of the Board of Trustees of Innkeepers USA Trust and Authorizing Payment of Such Compensation by the Debtors and (II) Authorizing the Debtors to Compensate the Members of the Independent Committee (the Fried Frank Motion) [Dkt. No. 587] raises a number of questions that are independent of the retention issues raised in the various objections to the Fried Frank Motion. Specifically, the creation of the independent committee highlights a larger issue that goes to the heart of the Debtors plan process: from whom is the independent committee meant to be independent? The testimony at the PSA Hearing established that there already was an independent committee in place when the original Apollo deal was considered, and yet that committee supported the PSA. Moreover, the continuing need for the committee seems to indicate the continued pursuit by the Debtors of alternative transactions with Apollo. Finally, if the independent committee is necessary to evaluate deals with Apollo, it is curious, to say the least, that two of the committees members appear to be involved with Apollo-controlled entities, and that proposed counsel to the independent committee, Fried Frank, also serves as counsel to Apollo in other matters. See Midland Loan Services Inc.s Objection to the Fried Frank Motion [Dkt. No. 649], pg. 10-11, 15.

overly-complicated single enterprise is a self-serving fiction that consciously ignores the Debtors corporate structure, financing documents, and operations. 10. These concerns are exacerbated by the fact that, based on the Exclusivity Motion,

the Debtors have failed to market their assets on either an individual or portfolio basis. Indeed, by filing the Exclusivity Motion and announcing an enterprise restructuring path, the Debtors have chilled any such potential sales by effectively announcing to the market that the Debtors are only looking to restructure as a whole. The Debtors asides about being willing to consider all practicable plan structures will be seen as no more than empty words, particularly when the one alternative that has already surfaced - Five Miles proposal - is expressly criticized by the Debtors because it is not an enterprise-level restructuring. Exclusivity Motion, p. 8-9. 11. For the reasons set forth above, Appaloosa objects to the Exclusivity Motion, and

respectfully requests that the Court deny the Debtors an extension of their period of exclusivity beyond November 16, 2010. Granting such an extension would unfairly sideline any potentially beneficial plans or proposals that address the specific rights of each creditor constituency, such as that already being developed by Five Mile. There is nothing to suggest that allowing the Debtors exclusivity to expire will do anything other than maximize the value of these estates for the benefit of creditors. The Debtors neglected to formulate a consensual plan from April through October 2010, and that neglect should not be rewarded with continued unilateral control over the plan process. The Debtors Motion asks the court to grant an extension of the exclusivity [n]ow that the plan process is the primary focus of the Debtors restructuring. Exclusivity Motion, p. 4. It is simply too late for the Debtors to now decide to focus on the plan process, particularly the one described in the Exclusivity Motion.

Dated: New York, New York November 5, 2010

Respectfully submitted, SIDLEY AUSTIN LLP

By:_/s/ Lee S. Attanasio_______ Lee S. Attanasio 787 Seventh Avenue New York, New York 10019 Telephone: (212) 839-5300 Facsimile: (212) 839-5599 lattanasio@sidley.com

Attorneys for Appaloosa Investment L.P. I, Palomino Fund Ltd., Thoroughbred Fund L.P., and Thoroughbred Master Ltd.