December 27, 2005
Mail Stop 4561
Richard Szymanski
Chief Financial Officer
Morgans Hotel Group Co.
475 Tenth Avenue
New York, NY 10018
Re: Morgans Hotel Group Co.
First Amendment to Registration Statement on Form S-1
Filed December 7, 2005
File No. 333-129277
Dear Mr. Szymanski:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. We note your response to prior comment 3. We further note,
from
page 36, that the initial properties held by Morgans Hotel Group
LLC
will be exchanged for a fixed number convertible membership units
in
Morgans Group LLC, your operating company. Based on your
disclosure,
it appears to us that you have not yet fixed the number of units
that
will be exchanged for the initial properties. Accordingly, it
appears that your private placement of these units may not have
been
completed prior to the filing of this registration statement.
Please
amend your analysis to discuss this aspect of the transaction in
more
detail. Please note, the fact that you may consider the transfer
to
be a recapitalization does not preclude us from determining that a
"sale" has occurred for purposes of Section 5 of the Securities
Act.
If integration is warranted, please tell us why this transaction
does
not constitute a roll-up within the meaning of Item 901 of
Regulation
S-K.
Summary
Formation and Structuring Transactions, page 5
2. We note your response to prior comment 5. Please tell us the
basis for concluding that the fair market value of MHG Management
Company was $20 million.
Risk Factors, page 9
3. Please revise these summary risk factors to include a summary
of
historical losses, and your belief that these losses may continue,
appearing on page 17.
Risk Factors, page 14
We have substantial debt..., page 20
4. Please quantify the debt you will guarantee in connection with
the
loan to MHG Management.
Formation and Structuring Transactions, page 35
5. Please revise the disclosure in this section to clarify that
"MHG
Management Company" refers to Morgans Hotel Group Management LLC.
6. In the second bullet point on page 36, please identify the
Morgans
Hotel Group LLC subsidiary and the subsidiary`s lender that will
receive loan proceeds. Please quantify the payment and disclose
any
affiliations between the lender and related parties.
7. The third bullet point on page 36 states that Morgans Hotel
Group
LLC will contribute to Morgans Group LLC all of its interests in
its
subsidiaries for no consideration. Please reconcile this
statement
with disclosure toward the bottom of page 36, which indicates that
Morgans Hotel Group LLC will receive a fixed number of membership
units in Morgans Group LLC following the contribution of those
interests.
8. Refer to the carry-over paragraph at the top of page 37. The
disclosure suggests that NorthStar and RSA Associates are the only
members of Morgans Hotel Group LLC that will receive a
distribution
of membership interests in Morgans Group LLC. The chart on page
35,
however, indicates that NorthStar and RSA Associates are not the
only
member of Morgans Hotel Group LLC. In addition, we note from the
Formation and Structuring Agreement that Messrs. Overington and
Andrei will receive Morgans Group LLC units from Morgans Hotel
Group
LLC. Please revise to discuss this aspect of the distribution or
tell us why you have omitted it from the prospectus. Also, please
provide to us a copy of the Participation Agreements referenced in
Section 1.2(b)(i) of the Formation and Structuring Agreement.
9. The last bullet point on page 37 states that NorthStar will
distribute all of the shares of your common stock it receives to
its
partners. Please reconcile this statement with the disclosure on
page 38, which states that NorthStar will sell shares of your
common
stock in the IPO and that NorthStar will own shares of your common
stock after your IPO is completed.
Accounting Treatment, page 40
10. We note that you have included a section titled Accounting
Treatment in your filing that discloses the accounting for the
transfer of interests made by Morgans Hotel Group LLC to Morgans
Group LLC. Please expand this disclosure to also address your
basis
in GAAP for the treatment of the contribution of MHG Management
Company to Morgans Group LLC at fair value and not historical
cost.
Use of Proceeds, page 41
11. For debt incurred within one year, including as a result of
your
June refinancing, describe the use of the proceeds of the loan
other
than as short-term borrowings for working capital.
Management`s Discussion and Analysis..., page 49
12. Where relevant, please disclose the asset and nature of the
2004
impairment charge described in Note 2 to your financials.
Liquidity and Capital Resources, page 65
13. Please tell us why you consider the property tax abatement
phase-
out, beginning in 2008, to be a short-term liquidity item. Also,
where relevant, please discuss in more detail the liabilities
associated with the design fees described in Note 5 to your
financials.
Debt, page 67
14. Please quantify the anticipated prepayment fees associated
with
the debt you intend to pay off with proceeds of this offering.
Our Business and Properties, page 73
15. We note that you are pursuing a number of renovation and
expansion projects. Where appropriate, please discuss the nature
of
those projects in more detail.
Competitive Advantages, page 75
16. We note your responses to the twelfth and fourteenth bullet
points contained in prior comment 36. Please include the
information
contained in these responses in your prospectus, where
appropriate.
Hudson, page 85
17. We note your response to comment number 46. It appears that
you
are consolidating Hudson Leaseco LLC. Please tell us and revise
to
disclose your basis for consolidating Hudson Leaseco LLC.
18. Please revise to explain in more detail the implications of
Hudson being structured as a condominium. It is not clear how you
own 100% of a condominium building. Also, please explain whether
the
ownership of SROs is different from ownership of the hotel rooms.
Briefly discuss your plans with respect to the 21 vacant SROs. We
note that you are required to maintain long-term SRO tenants, but
it
is not clear whether you intend to lease the vacant SROs to new
tenants.
Mortgage and Other Indebtedness After This Offering, page 108
19. We note that you intend to repay the mezzanine loans with
offering proceeds. Please explain how you meet the conditions for
prepayment.
20. We note from page 109 that Morgans Hotel Group London Limited
is
the party liable under your newly refinanced loan. Please tell us
whether you are a guarantor of this loan. If so, and in light of
this entity`s history of debt service shortfalls and your
predecessor`s significant compensatory transfers, please tell us
why
it would not be appropriate to consider this obligation in your
section on liquidity.
Certain Relationship and Related Party Transactions, page 115
Agreements with Ian Schrager, page 118
21. On page 119, please disclose the bonus for which Mr. Schrager
will be eligible in 2005.
Option Agreement, page 119
22. Please file a copy of the option agreement as an exhibit to
the
registration statement.
Joint Venture Agreements, page 119
23. We note your response to prior comment 57. Please confirm
that
your affiliates hold no indirect interests in these entities.
Principal and Selling Stockholders, page 123
24. Please identify the selling shareholders that are broker-
dealers
or are affiliated with broker-dealers. Please note, a registration
statement registering the resale of shares being offered by
broker-
dealers must identify the broker-dealers as underwriters if the
shares were not issued as underwriting compensation.
25. We note that all of your selling shareholders-including any
sellers that may be affiliated with broker-dealers-received their
securities as part of the formation transaction. Please provide
an
analysis showing that the resale of these securities is not an
indirect primary offering. Your analysis should address the
following points:
* whether the selling shareholder is affiliated with a broker-
dealer;
* how long the selling shareholders have held the securities,
* the circumstances under which the selling shareholders received
the
securities,
* the selling shareholders` relationship to the issuer,
* the amount of securities involved,
* whether the sellers are in the business of underwriting
securities,
and
* whether under all the circumstances it appears that the seller
is
acting as a conduit for the issuer.
26. Assuming the resale of securities by broker-dealer affiliates
is
not an indirect primary offering, you must clearly state in your
prospectus that:
* the seller purchased in the ordinary course of business; and
* at the time of the purchase of the securities to be resold the
seller had no agreements or understandings, directly or
indirectly,
with any person to distribute the securities.
Description of Capital Stock
Super-Majority Approval Requirement, page 125
27. Please identify the provisions subject to this requirement.
Underwriters
Directed Share Program, page 139
28. Refer to the cover letter you intend to deliver along with the
directed share program materials. Please make it clear that the
offering of stock will be on behalf of both the company and
selling
shareholders.
29. We note your disclosure that participants will be subject to
lock-up agreements. This appears to conflict with the fourth
bullet
point on page 5 of your frequently asked questions, included in
your
directed share program materials, which states that shares may be
sold at any time after purchase. Please advise or revise.
Combined Financial Statements
Note 4 - Investments in and Advances to Unconsolidated Joint
Ventures, page F-13
Paragraph 5(a) of FIN 46(R)
30. You noted in your response to comment 73 that the total equity
at
risk of MHG Europe was sufficient to permit the venture to finance
its activities without additional financial support, however the
balance sheet for MHG Europe as of September 30, 2005 shows that
the
venture has received $17 million of additional loans from the
joint
venture partners. It appears that the additional fundings should
be
considered reconsideration events under paragraph 7 of FIN 46(R).
Please address the additional fundings in a more detailed
response.
Please tell us how much additional funding each joint venture
partner
has provided and whether or not the joint venture partners are
committed to continue funding. Please also provide us with the
details of these commitments, if applicable.
31. You disclosed that MHG London, a wholly owned subsidiary of
MHG
Europe, was in technical violation of certain loan covenants and
that
it negotiated a waiver with the lender until March 31, 2005. The
lender did not take action after that time, and MHG London
subsequently refinanced the existing debt with a new lender.
Please
tell us if any guarantees were necessary in order to secure the
new
loan.
32. Please tell us what fees were paid up front or over time to
the
joint venture partners by the entity and how you considered these
fees when evaluating the entity under paragraph 5(a) of FIN 46(R).
Paragraph 5(b) of FIN 46(R)
33. Please provide us with more details regarding your company`s
decision making ability pursuant to the management agreement
between
one of your subsidiaries and the joint venture. For reference,
please see footnote 7 of paragraph 5(b) of FIN 46 (R).
Note 7 - Commitments and Contingencies
Construction Settlement, page F-21
34. In your response to comment number 79, you noted that you
recorded the $10 million settlement amount in "property and
equipment" in 2002. You disclosed in your filing that the
settlement
was for a construction related lawsuit. Please tell us the nature
of
the construction related lawsuit and your basis in GAAP for
capitalizing this amount as part of "property and equipment."
Litigation, page F-22
35. We note that you have added disclosure to your filing
regarding
litigation with MHG London, the entity that owns St. Martins Lane
and
Sanderson. You disclose that it is not possible to meaningfully
quantify any potential liability given the current state of
ongoing
discussions with the Inland Revenue. In accordance with SFAS 5
please tell us and disclose if an unfavorable outcome is probable,
reasonably possible or remote. See paragraphs 8-10 of SFAS 5.
Information Not Required in Prospectus
Item 15. Recent Sales of Unregistered Securities
36. Please revise to include an analysis of the exemption
available
for the issuance of Morgans Group LLC units to Morgans Hotel Group
LLC in exchange for the initial properties.
Exhibits
37. Please file the indemnification agreement, described on page
122,
as an exhibit to this registration statement.
38. Refer to the draft legal opinion. Counsel`s opinion
effectively
assumes that the securities will be duly issued. This assumption
is
not appropriate because counsel must opine on the validity of the
issuance of the securities. Please provide a revised opinion that
omits this assumption.
As appropriate, please amend your registration statement in
response to our comments. You may wish to provide us with marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendments that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We will consider a written request for acceleration of the
effective date of the registration statement as a confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the above registration
statement. We will act on the request and, pursuant to delegated
authority, grant acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendments for further
review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Jessica Barberich at 202-551-3782 or Daniel
Gordon, Accounting Branch Chief, at 202-551-3486 if you have
questions regarding comments on the financial statements and
related
matters. Please contact Geoffrey Ossias at 202-551-3404 or me at
202-551-3780 with any other questions.
Sincerely,
Karen J. Garnett
Assistant Director
cc: Robert W. Downes (via facsimile)
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Richard Szymanski
Morgans Hotel Group Co.
December 27, 2005
Page 9