NEW YORK (Reuters) – The recent auction for hotel chain Extended Stay America Inc [ESAIN.UL] looked like it had been fairly run based on the court documents submitted, a bankruptcy court judge said on Thursday during a hearing.
Starwood Capital, which lost the auction, has objected to Extended Stay’s plan, saying that it does not provide enough value to unsecured creditors.
A group of funds including Centerbridge Partners bid $3.925 billion in the auction and was selected to be part of Extended Stay’s plan to emerge from bankruptcy. The court was due to rule on the company’s disclosure statement on Thursday.
“It is my view based upon what I have read that the auction was fairly conducted, that it took quite a long time, involved very sophisticated parties and produced an extraordinarily good result,” U.S. Bankruptcy Judge James Peck said at the beginning of the hearing.
Starwood earlier this week filed an objection to the deal with the U.S. Bankruptcy Court in Manhattan, saying Extended Stay is worth substantially more than the price that Centerbridge Partners, Paulson & Co and Blackstone Group LP (BX.N) would pay.
The Centerbridge group’s $3.925 billion cash bid for the chain at the May 27 auction beat out a bid from Starwood and TPG Capital LP [TPG.UL] that was worth about $3.88 billion, Extended Stay lawyer Jacqueline Marcus said during the hearing.
Starwood’s lawyer argued that the bidders in the auction, had been forced by secured creditors to submit only cash bids and leave the possible added value of a noncash component on the sidelines.
“It was clear to us and everybody participating that if you didn’t bid all cash, you were not going to succeed at the auction. That chilled our ability to come up with higher value based upon a structured bid,” lawyer Bruce Zirinsky of Greenberg Traurig said.
Starwood said in court documents that based on projections it provided, Citigroup Global Markets had estimated that Extended Stay would be worth about $4.8 billion to $5.2 billion if it were now trading on a stock exchange.
Starwood, which is asking for the right to present its own plan for Extended Stay to creditors, also said in documents that the company’s disclosure statement — which would go to creditors for a vote if approved by the judge during the hearing — would not be confirmable as a final plan to emerge from bankruptcy.
The case is in Re: Extended Stay Inc, U.S. Bankruptcy Court, Southern District of new York, No. 09-13764. (Reporting by Caroline Humer; Editing by Gerald E. McCormick)