Starwood-led group in $905m hotel recap

Extended Stay’s board has backed the offer from Starwood, TPG and Five Mile, saying it would value the bankrupt company at $3.9bn.

Starwood Capital, TPG Capital and Five Mile Capital have agreed to a $905 million recapitalisation of the bankrupt hotel chain, Extended Stay.

The trio of private equity firms have won the backing of Extended Stay’s board of directors, which argues the deal would value the company, post-bankruptcy, at $3.9 billion, and trumps the recent $450 million offer from investment firms Centerbridge Partners and Paulson & Co. The Centerbridge, Paulson bid has been terminated, Starwood said in a statement.

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Thursday's offer would see Starwood, TPG and Five Mile invest $450 million cash into Extended Stay, and backstop a $200 million rights offering. A further $255 million would be offered to creditors who “prefer cash to the equity they would receive as part of the plan of reorganisation”.

Starwood said it would provide half of the new equity infusion, while TPG and Five Mile would split the remaining 50 percent. Any reorganisation plan has to be approved by US bankruptcy court.

“We are excited about the prospects of acquiring Extended Stay,” said Barry Sternlicht, chairman and chief executive officer of Starwood. “We believe we have made a very compelling offer.”

The statement added the hotel group’s debt load would reduced from $7.4 billion to $2.8 billion following a reorganisation. Certain holders of the $4.1 billion mortgage would receive a $200 million cash pay down, a new $2.8 billion mortgage and $471 million of equity, while junior mortgage holders and holders of the company’s $3.3 billion mezzanine debt would be provided with junior equity interests, the statement said. 

Private equity real estate firm, Lightstone Group, acquired the Extended Stay hotel chain from The Blackstone Group in an $8 billion deal in 2007, relying on about $7.4 billion of debt, including a $4.1 billion mortgage and $3.3 billion of mezzanine debt, split into 10 tranches.