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Colony Capital takes over hotel distrib LodgeNet

Sets DirecTV pact as part of accelerated Chapter 11 filing

Miramax investor Colony Capital is preparing to take the reins of LodgeNet Interactive Corp., inking a deal to give the company that distribs movies and TV shows to hotels a $60 million cash infusion.

When the deal closes, Colony will become LodgeNet’s majority stakeholder, LodgeNet said Monday. Process will be completed through an expedited Chapter 11 bankruptcy that will likely close in the first quarter.

New equity will shore up LodgeNet’s balance sheet and allow for an additional five-year extension of its current $346 million credit facility.

DirecTV is one of LodgeNet’s creditors, along with HBO, Disney’s ESPN and CBS’ Showtime. All unsecured creditors would be paid in full for any pre-petition claims if the restructuring is approved by a bankruptcy court judge, the company said in a Securities and Exchange Commission filing.

In addition, LodgeNet has agreed to a deal with DirecTV whereby the pair will operate as “strategic partners within the hospitality and health care markets,” according to a release. That will give LodgeNet access to DirecTV’s marketing, technology and branding infrastructure, and may mean more DirecTV channels on LodgeNet’s system.

For Colony, the deal to rescue LodgeNet was a natural move given the firm’s portfolio of hotel investments including the Fairmont Raffles Hotels Intl., Accor, Amanresorts, the Costa Smeralda in Sardinia, the Mayfair and Stanhope in New York and the Orchid at Mauna Lani in Hawaii.

Colony, one of the largest investors in Miramax, will likely pump more of Miramax’s content through LodgeNet, according to a source close to both companies.

Miramax’s new leadership has aggressively inked deals to exploit its library on a number of platforms. Colony was among the bidders for Summit last year — a move many observers credit to Colony’s desire to match up Miramax’s assets with a robust distribution system.

LodgeNet will also get additional liquidity through a $15 million loan from its creditors.

While the deal marks the first transaction between Colony and LodgeNet, Colony principal Richard Nanula has a relationship and familiarity with LodgeNet and its model from his days as president and COO of Starwood Hotels and Resorts more than a decade ago.

“LodgeNet is a distressed investment opportunity that is a natural fit for Colony,” Nanula told Variety. “LodgeNet operates at the crossroads of industries we’ve invested in for many years — hotels and entertainment. We look forward to bringing our experience and our deep relationships to the Company as we make LodgeNet the in-room entertainment experience of choice. We want customers to know that they will see no interruption in their service and the best is yet to come.”

New coin could also be used to expand LodgeNet and fuel acquisitions, although Nanula declined to speculate on specific assets of interest.

LodgeNet, one of the largest providers of content to hotel rooms and hospitals, currently gets much of its product from DirecTV and the major Hollywood studios, in windows that vary widely.

Colony hopes to expand LodgeNet’s reach both domestically and abroad: The company aims to expand its reach to more hospitals and internationally, especially in hotels in Europe, Latin America and Asia. There is also discussion of increasing LodgeNet’s television content.

LodgeNet, based in Sioux Falls, S.D., has lost money since 2006. Most of its revenue comes from the hotel industry led by Hilton and Marriott. It was founded in 1980 as Satellite Movie Company and went public in 1993. In 2006, it acquired Ascent Entertainment, parent of On Command Corp., from Liberty Media for close to $380 million.

(Jill Goldsmith contributed to this report.)

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