Extended Stay Wins Court Approval of Plan to Sell Assets, Exit Bankruptcy

Extended Stay Inc., the bankrupt U.S. hotel operator, won approval of its plan to pay creditors by selling its assets to Centerbridge Partners LP, Paulson & Co. and Blackstone Group LP.

U.S. Bankruptcy Judge James Peck in New York today approved Extended Stay’s restructuring plan, which calls for the Centerbridge group to pay $3.9 billion for the company’s hotels.

“I am personally delighted that the parties in interest in this bankruptcy case have managed to craft so workable a plan,” Peck said in confirming it.

Extended Stay, based in Spartanburg, South Carolina, filed for bankruptcy in June 2009 after occupancy rates at its hotels fell because of the recession. The company, purchased by Lightstone Group in an $8 billion leveraged buyout in 2007, didn’t make enough to service its debt, it said.

The company held an auction for its assets in May and selected Centerbridge, Paulson and Blackstone’s $3.9 billion bid as the winning offer. The group outbid one led by Starwood Capital Group.

Extended Stay under the plan will use proceeds from the sale to pay down its $4.1 billion mortgage debt. The Centerbridge group is to take ownership of 664 Extended Stay hotels.

Owners of $3.3 billion in so-called mezzanine debt and general unsecured creditors will receive proceeds of a litigation trust. Mezzanine loans rank in the capital structure between secured debt such as mortgages and ownership equity, sharing attributes of both.

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

To contact the reporters on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net; Thom Weidlich in New York at tweidlich@bloomberg.net.

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