Creditors File Complaint Against Lightstone Holdings

A trust representing creditors of bankrupt motel chain Extended Stay America Inc. have filed a complaint against Lightstone Holdings and other parties, Reuters reported Monday. The complaint is aimed at avoiding obligations arising from the loans made by them to fund the 2007 leveraged buyout of the hotel chain, Reuters wrote. Private equity giant Blackstone Group sold Extended Stay in 2007 in an $8 billion deal. The complaint, filed in Manhattan’s bankruptcy court, is seeking to recover funds to benefit creditors.

(Reuters) – A trust representing creditors of the bankrupt hotel chain Extended Stay America Inc. has filed a complaint against Lightstone Holdings and other parties to avoid obligations arising from the loans made by them to fund the 2007 leveraged buyout (LBO) of the hotel chain.

Blackstone Group LP in 2007 sold the chain of about 680 hotels for $8 billion to little-known private equity investor David Lichtenstein, the sole managing member of Lightstone Holdings.

The amended complaint filed on Friday in Manhattan’s bankruptcy court is also seeking to recover funds to benefit creditors who lost money in the bankruptcy.

The complaint also names Bank of America, which funded the buyout.

“The initial lenders … knew or should have known that the LBO would leave the company inadequately capitalized and that the mezzanine debt they were creating would be underwater from the start,” the complaint says.

The lenders in Lightstone’s 2007 purchase include Wachovia Bank, which is now owned by Wells Fargo & Co and Key Corp’s Key Bank National Association.

The case is in Re: Walker, Truesdell, Roth & Associates, as Trustee for and on behalf of the Extended Stay Litigation Trust v. Lightstone Holdings Inc et al,Bankruptcy Court, Southern District of New York, No.11-02256.

(Reporting by Tanya Agrawal in Bangalore)