Extended Stay files reorganization plan based on $450 million funding

By Caroline Salls

Pittsburgh, Feb. 22 - Extended Stay Inc. filed its plan of reorganization Friday with the U.S. Bankruptcy Court for the Southern District of New York.

If holders of mortgage facility claims vote to accept the plan, investors Centerbridge Partners, LP and Paulson & Co. Inc. have agreed to purchase $225 million of new common stock in the reorganized company and contribute investor certificates.

The investors are expected to receive 38.22% of the total issued new common interests, subject to increase if holders of class B to class G mortgage certificates choose to receive unsecured notes instead of new interests.

If the holders of mortgage facility claims do not accept the plan, the investors will purchase $320 million of new common interests and contribute the new investor certificates for 100% of the new common interests.

The proposed plan also includes a $225 million rights offering under which the investors will have the right to purchase one new common interest per each right held.

Treatment of creditors will include:

• Holders of administrative claims, priority tax claims and priority claims will be paid in full in cash;

• Holders of mortgage facility claims will receive 100% of rights being issued under the plan, 100% of new class A1, A2, A3 and A4 mortgage notes, 470,482 of common interests in the reorganized company and 100% of new unsecured notes if they vote to accept the plan.

If they vote to reject the plan, these creditors will receive $3.2 billion in new nine-year alternate notes with 5.34% interest.

Holders of class B through G mortgage claims can also elect to receive new unsecured notes in lieu of new common stock at a rate of $1.00 of unsecured notes for each $1.00 face amount of mortgage certificates;

• The holder of the ESA UD mortgage claim will receive a new mortgage note;

• Holders of mortgage facility deficiency claims will receive no distribution, provided, however, that they will receive new class A warrants if they vote to accept the plan;

• Holders of general unsecured claims will receive no distribution, provided, however, that they will receive new class A warrants if they vote to accept the plan. If their claims are $100,000 or less of they agree to reduce the claims to that amount, these creditors would receive a share of a cash distribution.

If holders of mortgage facility deficiency claims vote to accept the plan, general unsecured creditors will have been deemed to elect the cash distribution option;

• Holders of existing equity interests and other existing equity interests will receive no distribution; and

• Holders of various ESA trust certificates, borrower interests, properties interests, membership interests and partnership interests will retain those certificates and interests.

Extended Stay, a New York-based owner and operator of mid-priced extended stay hotels, filed for bankruptcy on June 15, 2009. Its Chapter 11 case number is 09-13764.

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