Sept. 30 (Bloomberg) -- Extended Stay Hotels Inc., facing a probe of claims that it filed for bankruptcy in a scheme to push out junior debt holders, will have its bank deals investigated by Salt Lake City lawyer and former judge Ralph Mabey.

Trustee Diana Adams, who represents the U.S. Justice Department in the case, appointed Mabey as examiner after winning court approval of the probe last week. U.S. Bankruptcy Judge James Peck approved the appointment yesterday in New York.

Adams sought an investigation of the hotel chain following claims by two mezzanine lenders that the private-equity firms Cerberus Capital Management LP and Centerbridge Partners LP made a deal with senior lenders including Wells Fargo & Co. and Bank of America Corp. to wipe out the mezzanine debt and take over the chain’s 680 properties through a Chapter 11 filing.

The probe of Extended Stay’s bank deals during the past two years, when the chain’s value plunged, will determine if legal claims against the lenders exist, and whether they should be pursued to benefit all of the chain’s creditors, Adams said in a July court filing.

The U.S. Trustee’s office declined to comment on why it chose Mabey. Neither Mabey nor Extended Stay’s lawyer, Jacqueline Marcus, returned calls for comment. Marcus earlier said the probe would prove Extended Stay hadn’t done anything wrong in filing for bankruptcy.

‘Serious Allegations’

Extended Stay listed debt of $7.6 billion in a June 15 Chapter 11 petition it blamed on decreased business-travel spending. Most of the debt was taken on in 2007 to finance Extended Stay’s $8 billion acquisition by David Lichtenstein and his Lightstone Group LLC.

“The negotiations that unfolded after the acquisition and prior to the bankruptcy filings ultimately led to serious allegations in various complaints against the debtors’ insiders and senior lenders,” Adams said in the filing.

Lightstone bought the chain from private-equity firm Blackstone Group LP, which paid $2 billion in cash for Extended Stay just a few years earlier. The Lightstone deal, which took place at the peak of the real-estate market, included personal guarantees by Lichtenstein to face millions of dollars in liabilities if the company went bankrupt.

Lichtenstein, Extended Stay’s chief executive officer, “is the only one who appears to be surviving the debtors’ bankruptcy filing relatively unscathed,” Adams said in her request for an examiner. “Under the proposed terms of the restructuring, Lichtenstein would avoid the personal guaranties agreed to in the original loan agreements,” she said.

Government Claims

The U.S. government is among the company’s biggest creditors, with more than $1 billion in claims racked up through a trust created for the collapsed bank Bear Stearns Cos.

Mabey, of the firm Stutman Treister & Glatt, was a bankruptcy judge in Utah from 1979 to 1983, according to the firm’s Web site. He earned his law degree from Columbia University and is currently a professor of law at the S.J. Quinney Law School of the University of Utah.

Mabey was previously examiner of A.H. Robins Co., which filed for bankruptcy amid more than 200,000 injury lawsuits related to its 1970s Dalkon Shield contraceptive device. A.H. Robins was acquired by American Home Products Corp. in 1989.

A decade ago, when Mabey was a lawyer at LeBoeuf, Lamb, Greene & MacRae, the lawyer was named mediator to help discount retailer Caldor Corp. and its lenders agree on a reorganization plan involving the company’s 145 stores.

The case is In re Extended Stay Inc. 09-13764, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.

Last Updated: September 30, 2009 14:07 EDT