Starwood Fights for Bankrupt Hotel Chain

By: Timothy McFarlin | Published: June 21st, 2010 | Category: Bankruptcy

Starwood Capital Group, who recently lost an auction to purchase the bankrupt hotel chain, Extended Stay, to Centerbridge Partners, will fight the deal in court. In 2004, the Blackstone Group, the owners of Homestead Studio Suites Hotels, purchased Extended Stay America. Then, in 2007, The Lightstone Group bought Extended Stay Hotels, its brands and management company for a reported $8 billion.

Then, last year, the bottom fell out and the company filed for Chapter 11 bankruptcy, while continuing to operate utilizing its own cash flow rather than debtor-in-possession financing.

Starwood filed an objection to the recent deal with the US Bankruptcy Court in New York City. They claim extended Stay is worth a great deal more than the offer Centerbridge Partners, Paulson & Company and the Blackstone Group, LP will pay. Additionally, Starwood felt the auction process overall was not run well due to its many conflicts. They complain cash bids did not maximize value and were intended to pay off secured creditors.

Centerbridge and Paulson both agreed to pay $3.925 billion in cash for the bankrupt hotel chain—some $40 million more than what Starwood and TPG Capital were offering. However, Starwood claims Citigroup Global Markets valued Extended Stay to be worth approximately between $4.8-$5.2 billion.

The court will now consider the disclosure statement of Extended Stay’s plan to emerge from bankruptcy. Starwood, is planning on presenting its own reorganization plan to creditors, and says the current final plan to emerge from bankruptcy does not give enough information nor provide any direction.

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