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Report: Extended Stay Creditors May Block Buyout

(Reuters) – Creditors of bankrupt hotel chain Extended Stay America may block a buyout proposal submitted by private equity firm Starwood Capital Group, the New York Post said, citing a source close to the situation.

Starwood, led by real estate developer Barry Sternlicht, made a binding proposal to Extended Stay on March 17 and offered to take the company out of bankruptcy.

Extended Stay, a U.S. midpriced hotel chain, was bought in June 2007 by an investor group led by David Lichtenstein’s Lightstone Group.

The hotel chain was forced into bankruptcy last year after its projected cash flows declined in the recession and it could not keep servicing more than $7 billion in debt.

Some senior creditors are not happy with Sternlicht’s proposal because it does not offer them an attractive enough interest rate compared with what junior creditors are getting, the Post said.

The last chapter has not been written yet on Sternlicht’s buyout, a source told the Post.

“Mortgage holders could look to take over the assets themselves, or start a more traditional sale process,” a source told the paper.

A second source told the Post that creditors might not want to take a loss on their mortgages. And with Extended Stay keeping up with its interest payments, creditors are in no rush to cash out, the paper said.

Starwood is working on its bid for Extended Stay with affiliates of Five Mile Capital and TPG Capital, according to court papers.

Reuters was unable to reach Starwood Capital or a lawyer for Extended Stay outside regular U.S. business hours. (Reporting by Sakthi Prasad in Bangalore; Editing by Lisa Von Ahn)