PE trio to take control of Extended Stay Hotels for $905m

The proposal allows Extended Stay, which will be valued at $3.9bn after the transaction closes, to emerge from bankruptcy with a stronger balance sheet, reduced debt load and cash reserves to invest in its properties and operations.

The company has decided this latest offer is more lucrative than an earlier arrangement with private equity house Centerbridge Partners and investment firm Paulson & Co, which has now been terminated.

Barry Sternlicht, chairman and CEO of Starwood, said, "We are excited about the prospects of acquiring Extended Stay. We believe we have made a very compelling offer with the specific intent of balancing and considering the interests of all stakeholders involved here.”

Starwood, which is putting up half of the equity for the deal and TPG and Five Mile providing the remainder equally between them, has experience of turnarounds in the hotel space.

In 1995 the firm acquired - and subsequently recapitalised, reorganised and expanded - Starwood Hotels & Resorts Worldwide Inc, the owner of brands such as Westin, Sheraton, W Hotels, The St. Regis and Le Meridien.

Barry Sternlicht, chairman and CEO of Starwood Hotels between 1995 and 2005, is being lined up to take Extended Stay’s chairmanship. The industry veteran currently serves as the chairman of Groupe du Louvre, which owns some the world's best-known luxury hotels, including the Crillon in Paris.

The private equity consortium of Starwood, TPG and Five Mile intends to invest $450m of equity directly into Extended Stay and has also agreed to backstop a $200m equity rights offering, thereby injecting $650m of new capital into the company.  The trio will also commit $255m to provide a cash alternative for creditors who prefer cash to the equity they would receive as part of the reorganisation plan.

Extended Stay’s mortgage lenders will collect a $200m cash pay down, a new mortgage, reduced from $4.1bn to $2.8bn, and $471m of equity in the restructured business. The hotel chain’s mezzanine debt providers, who have put up $3.3bn, will receive junior equity stakes.  

Overall, the reorganisation will see the company’s debt cut back from $7.4bn to $2.8bn.

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