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Open auction could be the last chapter in the hotel industry’s largest bankruptcy
The fate of Extended Stay Inc. could be decided in an open auction next month, ending a months-long contest for ownership of the troubled 680-hotel chain. According to a report in The Wall Street Journal (WSJ), the company's board of directors did an about-face last Friday when it “switched allegiance” from a creditor group led by Starwood Capital Group to a rival led by Centerbridge Partners and Paulson & Co.
The move came after Centerbridge-Paulson's group stepped up its previous $450 million offer with a $905 million bid that equaled one made in March by Starwood Capital in conjunction with TPG Capital and Five Mile Capital Partners LLC. Based on that proposal, reports WSJ, Extended Stay's board “signed a commitment letter backing the Centerbridge-Paulson plan” which calls for an open auction in May. Bidders would need to make a $150 million deposit. Although Extended Stay's board would select the winner, its decision would require the approval of creditors or the bankruptcy court.
Starwood Capital's group has yet to comment. The offer currently on the table would allow the hotel chain to emerge from bankruptcy and give it a post-transaction value of about $3.9 billion. As outlined in the WSJ report, the Starwood group “agreed to provide $650 million in new capital and committed $255 million to creditors who prefer to swap debt for cash.” While the Starwood plan includes fees, WSJ quotes sources as saying the Centerbridge-Paulson-led group “promised not to charge fees.”
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