Extended Stay inks new $905 million Starwood-led investment deal

By Caroline Salls

Pittsburgh, March 18 - Extended Stay Hotels, Inc. has reached an agreement under which Starwood Capital Group, TPG Capital and Five Mile Capital Partners would invest up to $905 million in Extended Stay as part of a recapitalization plan, according to a Starwood Capital news release.

Starwood said the proposal would allow Extended Stay, which would be valued at $3.9 billion after the transaction, to emerge from bankruptcy with a significantly stronger balance sheet, reduced debt load and significant cash reserves to invest in its properties and operations.

According to the release, Extended Stay's board of directors has determined that the offer from the Starwood-led consortium is superior to a previous agreement with Centerbridge Partners and Paulson & Co., which has been terminated.

Starwood said the consortium's plan is not conditioned on any financing or due diligence provisions, but is subject to bankruptcy court approval.

"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 chairman and chief executive officer Barry Sternlicht said in the release.

"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."

As part of the agreement, the consortium would invest $450 million of equity directly into Extended Stay and would also backstop a $200 million equity rights offering, thereby infusing $650 million of new capital into the company.

In addition, the consortium will commit $255 million to provide a cash alternative for creditors who prefer cash to the equity they would receive as part of Extended Stay's plan of reorganization.

Starwood said some holders of Extended Stay's $4.1 billion mortgage would receive a $200 million cash pay down, a new $2.8 billion mortgage and $471 million of equity in the reorganized entity.

Junior mortgage certificate holders and holders of the company's $3.3 billion mezzanine debt would be provided with junior equity interests.

As a result of this transaction, Starwood said Extended Stay's total debt would be reduced to $2.8 billion from $7.4 billion.

Under the agreement, affiliates of Starwood Capital Group will provide about half of the new equity, with affiliates of TPG and Five Mile Capital equally providing the remaining amount.

Sternlicht would serve as chairman of reorganized Extended Stay.

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

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