The hotel chain Extended Stay has been in the news lately, as its senior lenders and several financial firms attempt to pull it out of bankruptcy later in the year.
A $450 million injection of money into the company will, backers hope, be a sufficient component of a proposed plan to exit bankruptcy protection, the Wall Street Journal is reporting. Court papers in the bankruptcy case call on Paulson & Co. and Centerbridge Partners to provide the funds.
Paulson & Co. and Centerbridge Partners will invest $225 million into Extended Stay. This would represent a 22.5 percent stake in the struggling company. Additional money would come from a plan for Extended Stay to raise money via a rights offering. In this offering, the mortgage lenders that hold $4.1 billion in Extended Stay debt will have the chance, according to the Wall Street Journal, “to buy all the shares for an additional 22.5 percent stake plus warrants.”
These holders of Extended Stay mortgage debts will get new mortgage notes valued at $2.5 billion, and they will get a 55 percent stake in the company in the form of stock.
The details of this plan have come to light recently, following the investment agreements that Extended Stay made with the private firms.
Extended Stay filed for bankruptcy last June, following dropping occupancy in their hotels as a result of the difficult economy. The South Carolina-based company owns and maintains over 600 hotels, which are targeted at business travelers and mid-range hotel customers.
Two years ago, the Lightstone Group bought out the company from Blackstone Group LP for $8 billion. Under the new agreement, the entity that manages Extended Stay’s hotels will resign for these duties, in exchange for $30 million.
Following announcements of Extended Stay’s plan to get out of bankruptcy, a rival investor group made the announcement that its own plan would have been a better option than the one chosen.
Starwood Capital had been in the bidding to become the group investing the money in Extended Stay, though Paulson & Co. and Centerbridge Partners were chosen instead.
Now, the group is saying in court that it offered what it called a "binding offer" to sponsor the reorganization plan that Extended Stay will put in place. According to Starwood, it claims that its offer would provide "substantially greater" value to Extended Stay creditors, and that Extended Stay would have access to more cash than it will under the current plan.
Specific details of the Starwood offer were not filed in court. They did present their plan to object to Extended Stay’s current plan.
In January, Starwood claimed that it was being frozen out of the bid process. It said also that they were not getting the information that they needed to make a competitive bid, and that Centerbridge and Paulson were.
Starwood Capital led the restructuring and expansion of Starwood Hotels and Resorts Worldwide back in the 1990s. They cited this experience in the hotel management business to support their claim to investment rights in court.