NEW YORK (Reuters) – Centerbridge Partners, Paulson & Co and Blackstone Group LP (BX.N) beat out another investor group in an auction for Extended Stay, agreeing to pay $3.925 billion for the bankrupt hotel chain, according to sources familiar with the situation.
The other group included Starwood Capital Group and TPG Capital, the sources said Friday.
Under the all-cash offer, almost all of the more than 100 holders of Extended Stay’s senior debt would be repaid. But holders of the company’s mezzanine debt would not receive payment.
An Extended Stay spokeswoman could not be reached for comment.
Extended Stay America [ESAIN.UL], which has more than 680 hotels, filed for bankruptcy last year with more than $7 billion of debt. Centerbridge Group, Paulson and Blackstone had been vying for months against Starwood for control of the chain.
It ended up besting the Starwood-TPG offer, which was also in cash, by about $40 million, according to one of the sources.
Extended Stay filed for bankruptcy in June 2009 after it was unable to make payments on its hefty debt load, most of which was related to the 2007 leveraged buyout of the company by David Lichtenstein’s Lightstone Group.
A bankruptcy court examiner said in a report last month that the buyout had left the company drowning in mortgage debt that it could not support.
The auction, which began on Thursday, continued until nearly 5 a.m. on Friday as the two groups continued to raise their bids, sources said. It was held at the office of Weil, Gotshal & Manges, Extended Stay’s lawyers.
The Centerbridge Group is paying more than it had initially proposed in February, when it said it would invest up to $450 million in cash in the company upon its exit from bankruptcy. Starwood then bested that offer, saying it would invest up to $905 million in the company.
The floor bid in the auction from the Starwood-TPG group was between $3 billion and $3.2 billion and included a mixture of cash, securities and debt restructuring, sources said.
The company’s financial advisers at Lazard had once estimated the value of the new company at $2.8 billion to $3.6 billion, below the $3.925 billion it received.
The sale must now be approved by the Manhattan bankruptcy court overseeing the case.
The suitors had long been interested in the property. Blackstone sold Extended Stay to Lightstone and, according to the examiner’s report, Centerbridge Partners looked at two other possible deals with Extended Stay before the Lightstone buyout.
The case is in Re: Extended Stay Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-13764. (Reporting by Caroline Humer, Megan Davies and Deepa Seetharaman; Editing by Gerald E. McCormick, Steve Orlofsky and Leslie Gevirtz