Extended Stay went bankrupt, in part, because of its aggressive capital structure. The company was passed from one buyout firm (Blackstone) to another (Lightstone) at the top of the market. The deal, engineered by Wachovia’s Rob “Large Loan” Verrone, took the company’s debt-to-equity ratio to a crazy 12.7x from the already-high 11.1x at the time Blackstone Group bought it.
Verrone got his nickname from his coworkers for obvious reasons. He was later named by the New York Times as part of the problem behind Wachovia’s massive writedowns. From the Times:
Mr. Verrone won friends in New York by entertaining lavishly. … He won business by offering aggressive mortgages to some of the city’s most prominent developers.
The story notes that Verrone’s higher-ups gave him more latitude to commit faster than other lenders and offer aggressive financing terms on deals.
Verrone has since left Wachovia but his large loans remain. Other “Large Loan”-era deals that remain in the fringe include private equity firm JER Partners’ acquisition of Highland Hospitality Corp. for $2.1 billion, Ashford Hospitality Trust’s $2.4 billion acquisition of 51 hotels, and the $5.4 billion acquisition of Stuy-Town and Peter Cooper Village by Tishman Speyer.
Verrone was of course not involved in the loans on Blackstone’s buyout of Hilton. Bear Stearns led that.