MeriStar to be bought by Blackstone affiliate, will tender for, call bonds

By Paul Deckelman

New York, Feb. 21 - MeriStar Hospitality Corp. said Tuesday that it has agreed to be acquired by an affiliate of The Blackstone Group in a transaction valued at about $2.6 billion. In connection with that planned sale, MeriStar said in a filing with the Securities and Exchange Commission that it plans to tender for all of its outstanding 9% senior notes due 2008 and 9 1/8% senior notes due 2011, which are not currently callable, and will finish calling its 10½% senior notes due 2009.

In its most recent 10-Q filing with the SEC in November, detailing its 2005 third-quarter results, MeriStar, a Bethesda, Md.-based real estate investment trust specializing in hotel properties, indicated a total debt load of $1.61 billion, including $251.56 million of the 9% notes, $342.67 million of the 9 1/8% notes and $205.89 million of the 10½% notes.

On Feb. 2, the company announced plans to redeem $100 million of the 10½% notes on March 8 at a price of par plus a redemption premium of 5.25% and accrued interest, for a total of $107.671 million. In its filing Tuesday, MeriStar said that it would redeem the rest of the notes in a separate transaction following the closing of the separate, previously announced sale of several MeriStar properties to Blackstone.

The three note series being tendered for or redeemed collectively account for just less than 50% of MeriStar's total debt. The 8-K filing did not indicate the planned disposition of the rest of the company's debt - whether it would be repaid as part of the acquisition or would remain outstanding, and a MeriStar spokesman told Prospect News that the company was not commenting publicly at this time as to what would happen to it.

As outlined in the November 10-Q filing, MeriStar's capital structure, apart from the public debt slated to be taken out, also included $304.21 million of secured credit facility debt due in 2007, although that facility, into which the company entered last fall, can be extended three times at MeriStar's option. There was also $98.11 million in secured credit facility debt due 2013; $25 million drawn on a revolving credit facility and a $15 million secured bridge loan, both slated to come due later this year; and $170 million of 9½% convertible subordinated notes due 2010. The company listed another $204.48 million total of mortgage debt on several of its hotel properties plus other miscellaneous obligations, coming due at various times.

Acquisition financing for the Blackstone purchase of MeriStar is being provided by Bear Stearns, Bank of America and Merrill Lynch.

MeriStar owns 57 principally upper-upscale, full-service hotels in major markets and resort locations with a total of 16,507 rooms in 19 states and the District of Columbia, including 10 Florida properties that were already under contract to be sold to Blackstone in a previously announced deal. MeriStar hotels operate under such internationally known brands as Hilton, Sheraton, Marriott, Ritz-Carlton, Westin, Doubletree and Radisson.

Blackstone's proposed $10.45 per share purchase of MeriStar is the latest in a series of hotel industry acquisitions by the New York-based private equity company. Last June, Blackstone bought Wyndham International Inc. for $1.44 billion, and followed that up with the November acquisition of La Quinta Corp. for $2.28 billion, a deal that closed last month.

In a precursor to the deal announced Tuesday, Blackstone agreed to buy the 10 Florida properties from MeriStar - nine hotels and a golf and tennis club - in a $367 million cash transaction announced on Feb. 1.

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