REPORT FROM THE U.S.—A group led by Starwood Capital Group announced today that it will invest up to US$905 million in bankrupt Extended Stay America.
The announcement indicates a change of heart by ESA, which had earlier accepted a turnaround plan offered by investment firms Centerbridge Partners and Paulson & Company to assume a 22.5-percent stake in the company for US$450 million.
Representatives of Centerbridge did not immediately return calls for comment this morning. Paulson declined to comment.
• Read “Extended Stay files Ch. 11 reorganization plan.”
In a statement Starwood, along with TPG Capital and Five Mile Capital Partners, said the deal would allow ESA to emerge from bankruptcy with a stronger balance sheet, reduced debt, and enough cash to invest in its properties and operations. ESA would be valued at approximately US$3.9 billion post-transaction. There was no information on the percentage of ownership expected for each stakeholder in the release.
• Read the press release.
“We are excited about the prospects of acquiring Extended Stay,” said Barry Sternlicht, chairman and CEO of Starwood Capital, in the release. “We believe we have made a very compelling offer with the specific intent of balancing and considering the interests of all stakeholders involved here. Starwood Capital has unparalleled experience in the hospitality sector and we believe we are uniquely positioned to work with the team to help the company flourish and maximize the company’s potential for all stakeholders.”
An ESA spokesman did not immediately return a call for comment this morning.
Deal details
The deal calls for the Starwood Capital consortium to invest US$450 million of equity into ESA as well as a backstopped US$200 million rights offering. Additionally, the group would commit US$255 million as an alternative to creditors who would rather be paid in cash as part of the reorganization.
Some holders of ESA’s US$4.1 billion mortgage would receive a US$200 million pay down, a new US$2.8 billion mortgage and US$471 million equity in the company.
Junior mortgage certificate holders and holders of the company’s US$3.3 billion mezzanine debt would be provided with junior equity interests. Mezzanine debt holders previously filed objections to the earlier reorganization plan because the plan made no mention of the mezzanine debt holders.
ESA’s total debt would be reduced to US$2.8 billion from US$7.4 billion following the reorganization.
Under terms, Starwood affiliates will provide approximately half the new equity, while TPG and Five Mile affiliates would provide the rest.
Sternlicht would be appointed ESA chairman.
The proposal must still be approved the federal Bankruptcy Court. Other firms are also free to bid on ESA.
ESA bankruptcy
Spartanburg, South Carolina-based ESA filed for bankruptcy on 15 June 2009, revealing the company had liabilities of US$7.6 billion as of 31 December 2008 and revenues of about US$1 billion.
A court-appointed examiner has completed his review of the events leading to ESA’s downfall, but the report has been placed under temporary seal while confidentiality issues are worked out.
• Read “Examiner’s probe of ESA bankruptcy sealed.”
Extended Stay was acquired in June 2007 for US$8 billion by a group led by David Lichtenstein—who is also founder and CEO of real estate investing company The Lightstone Group.
