Blackstone Group LP (BX) was sued over its 2007 sale of Extended Stay Inc., which left the hotel company insolvent and drove it into bankruptcy, a trust for Extended Stay creditors said.
Blackstone “siphoned” $2.1 billion from the company as part of the leveraged buyout without regard for how it would perform following the deal, the creditor trust said in lawsuits filed yesterday in U.S. Bankruptcy Court in Manhattan and New York State Supreme Court. Blackstone called the suits meritless.
“Blackstone siphoned $2.1 billion of value from the debtors, rendering them insolvent, undercapitalized and unable to survive,” the complaints state. “The defendants were well aware of the financial harm of the LBO, but nevertheless caused or allowed it to happen.”
Blackstone, based in New York, sold Extended Stay to David Lichtenstein’s Lightstone Group LLC for $8 billion, according to a Lightstone statement at the time. Lichtenstein and Lightstone are also named as defendants in the lawsuits. Extended Stay filed for bankruptcy in 2009.
“The real cause of the company’s bankruptcy was an economic tsunami which resulted in across-the-board revenue per available room declines of more than 20 percent,” Christine Anderson, a Blackstone spokeswoman, said in an e-mailed statement. “This was an industrywide phenomenon that landed every large lodging transaction executed in 2006-2007 in bankruptcy, foreclosure or restructuring.”
A representative of Lightstone couldn’t immediately be reached for comment.
The bankruptcy case is Extended Stay Litigation Trust v. Blackstone Group LP., 11-02254, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The state-court case is Extended Stay Litigation Trust v. Blackstone Group, 651667-2011, New York State Supreme Court (Manhattan).
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