Extended Stay America last week accepted Starwood Capital Group’s buyout bid—but that doesn’t mean ESA’s bankruptcy is going to be resolved anytime soon.
People I’ve been speaking with who are familiar with the bankruptcy told me ESA’s senior creditors are none too happy with the terms of the deal and believe they are entitled to more than what Starwood has offered. These same people also said it’s not unusual at all for there to be a lot of back and forth between debtor and creditor while the bankruptcy case winds to a conclusion.
An outside spokesman for Starwood issued a “no comment” when I asked to confirm whether some creditors were unhappy with Starwood’s proposal.
A lot of deal-making
David M. Neff, co-chair of the Hotel & Leisure Group at Perkins Coie in Chicago, said there is likely to be a “heated battle” over ESA’s valuation.
“There’s always a lot of negotiating and … everybody is looking for a way to get in front of the judge,” he said. “They’re looking to decide which horse to ride.”
Case in point: On 5 March, investment firms Centerbridge Partners and Paulson & Company agreed to assume a 22.5-percent stake in the company for US$450 million. Another US$225 million could be raised through a rights offering, the company said in the filing.
And then about two weeks later came word that ESA had turned its back on the investment companies and had instead signed on to Starwood’s plan, which calls for a consortium led by Starwood 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.
And all this happened after ESA had turned its back on an earlier Starwood proposal that, according to a September Wall Street Journal story that quoted unnamed sources, had offered to buy ESA’s first mortgage for US$3.5 billion.
And the dealing is apparently not over yet. ESA, Starwood and the creditors are currently negotiating who is going to get what when all is said and done, according to sources who did not want to go on the record.
In short, the people I’ve talked to have said this is a case that is likely to have several more twists and turns before it’s done.
And according to Neff, that might not necessarily be a bad thing for ESA.
“The debtor can want issues raised so the deal can be sweetened,” he said.