Starwood Capital Group, TPG Capital and Five Mile Capital Partners say they have reached an agreement to invest up to $905 million in Extended Stay Hotels Inc. as part of a recapitalization plan that would allow the hotel chain to emerge from bankruptcy.
The proposal, which was filed with the U.S. Bankruptcy Court, Southern District of New York this week, would allow Extended Stay, which would be valued at approximately $3.9 billion post-transaction, to emerge from bankruptcy with reduced debt load and significant cash reserves to invest in its properties and operations, the investor groups say.
According to a statement from the Starwood Capital-led consortium, Extended Stay's board of directors has determined that the offer is superior to a previous agreement with Centerbridge Partners and Paulson & Co., which has been terminated.
The consortium's plan is not conditioned on any financing or due-diligence provisions, but is subject to the approval of the bankruptcy court.
‘We believe we have made a very compelling offer, with the specific intent of balancing and considering the interests of all stakeholders involved here," says Starwood Capital CEO Barry Sternlicht.
As part of the agreement, the consortium would invest $450 million of equity directly into Extended Stay and has also agreed to backstop a $200 million equity rights offering, thereby infusing $650 million of new capital into the company. In addition, the consortium will commit $255 million to provide a cash alternative for creditors who prefer cash to the equity they would receive as part of the plan of reorganization.
Certain holders of Extended Stay's $4.1 billion mortgage would receive a $200 million cash paydown, a new $2.8 billion mortgage and $471 million of equity in the reorganized entity. Junior mortgage certificate holders and holders of the company's $3.3 billion mezzanine debt would be provided with junior equity interests.
As a result of this transaction, Extended Stay's total debt would be reduced from $7.4 billion today to $2.8 billion post-reorganization.
SOURCE: Starwood Capital Group