Extended Stay Hotels, the hotel chain acquired at the peak of the commercial real estate market for $8 billion and which filed for bankruptcy protection on Monday, is expected to end up in the hands of private equity firms Cerberus Capital Management and Centerbridge Partners, who are also the company creditors, according to a report in the Financial Times on Tuesday.
The bankruptcy filing by Extended Stay follows a failed attempt by the company to restructure $3.3 billion in mezzanine debt. Mezzanine debt is often used to finance buyouts and ranks holders ahead of equity investors in the event of a bankruptcy. Investors who bought the debt that helped the company's $8 billion buyout have sued banks including Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) that provided much of the financing.
Extended Stay has struggled during the recession, hurt by the cutbacks in corporate and leisure travel. The company's revenue per available room for the first five months of 2009 was down 23.2% from the same period last year, bankruptcy documents showed. Extended Stay had about $7.1 billion in assets and $7.6 billion in liabilities at the end of 2008, according to the bankruptcy filing.
Extended Stay's facilities are managed under contract by HVM LLC, an entity that is affiliated with, but not directly owned by the company. HVM, which isn't involved in the bankruptcy filing, said Monday that Extended Stay's Chapter 11 filing should have no impact on the hotel chain's operations and that it expects to continue its operations without interruption. Extended Stay will use its cash flow, rather than debtor-in-possession financing, to fund operations, HVM said.
Extended Stay reportedly won interim court approval on Tuesday to use cash against which creditors have a claim, rather than debtor-in-possession financing. The company said that its management company, HVM LLC, would have only about $4 million by the end of Tuesday and the cash was needed to keep it operating. The company reportedly expects to use $16.7 million of cash collateral before the next interim hearing on its use of cash collateral, which is slated for June 24.
According to the Financial Times report, Extended Stay's agreement in principle with senior lenders values it at just over $3 billion, which is likely to wipe out senior lenders and a group of banks holding more junior debt. The South Carolina-based 680-property hotel chain was bought by private equity group Blackstone Group (BX) for just under $2 billion in 2007 and subsequently sold to Lightstone Group LLC and Arbor Realty Trust for $1 billion in cash and $7.4 billion in debt.
However, the economic downturn left the new owners with little cash flow to invest or pay operating costs. Much of the debt was in the form of commercial mortgage-backed securities, a form of debt that used to be applied to individual properties.
Extended Stay has $4.1 billion in mortgage debt held in a trust that issued certificates to investors. The company reportedly wants to treat each certificate holder as a creditor, but some of the certificate holders want the company to treat the trust as the sole creditor.
Also, the bankruptcy court must decide on the validity of an offer of a so-called "bad boy guarantee" from David Lichtenstein, the founder of Lightstone, pledging that if the company ever filed for bankruptcy protection, he personally would be liable for $100 million.
Shares of hotel owner Ashford Hospitality Trust Inc. (AHT) tumbled 22% on Tuesday after Robert Baird analyst David Loeb said the hotel investor is likely to write off a $164 million note due to the Chapter 11 bankruptcy filing of Extended Stay.
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June 12, 2026 17:14 ET Major central bank action was the focus this week in economic news. The European Central Bank became the first major central bank to move in response to the rising inflationary pressures in the backdrop of the conflict in the Middle East. In North America, the U.S. inflation and trade data as well as Canada’s central bank decision gained attention. The Chinese trade data was the main news in Asia.