Saturday, January 16, 2010

Extended Stay's Stay of Execution

Judge Peck extended the bankrupcty filing deadline to April 2nd.

According to Richard Parkus at DB, Centerbridge and Paulson are injecting $400mm in cash (200 equity/200 rights), and they want to bring on Doug Geoga to represent them on the board. Further, they're ready to pull the trigger immediately.

This may turn into a real issue with Starwood who bought the mezzanine debt, and subordinate bonds off the CMBS (G and H), and has been in much longer negotiations to take over the chain. They've publicly accused ESH of misleading them. Their reorg plan calls for making payments to the CMBS holders (who all are not receiving any interest right now, btw), amongst other things. They may well get a big slap in the face for their efforts to buy the debt, get a controlling position, receive no income on the debt purchase, pay a consultant, and then not get anything for it.

I'm on the road traveling, so don't quote me on the information below that ise based on memory alone!!!

For those without the full history, this is one of those loans (similar to PCV/ST) that everyone scratched their head on when it was first issued. It didn't make sense then, and it's fitting that it is one of the first to fail. Blackstone bought the chain in 2004 for something like $4 billion, and financed it through a loan that ultimately ended up in a Bear Stearns deal. Then, just 2 or 3 short years later, Blackstone flipped it to Lightstone, for TWICE as much ($8 billion). Lightstone is quite possibly the worst real estate investment vehicle ever created - the guy that runs it bought at the top, used the most leverage, and overpaid on top of that, and he did it over, and over, and over again.

So, Lightstone called up their buddy at Wachovia (whose name rhymes with varoom, kind of) and put together a great debt package including a CMBS component and mezzanine debt. Lichenstein (the dolt who runs Lightstone) even got on the hook for a $100mm personal recourse carveout when the loan went into bankruptcy. Of course he figured out a way to get out of this by getting an indemnification from some of the bondholders, which smelled a little funny and he must have used some sort of voodoo to get this in place.

Starwood stepped in and has effectively offered to buy them for $3.5billion. But that brings us back to the start of this article.

1 comment:

Alice Van Horne said...

Hey Concrete Jungle,
My name is Alice, and I’m with Llenrock Group, a boutique commercial real estate investment banking firm out of Philadelphia. We’ve been keeping up with your blog for a few months now and would love to exchange links with you. Our blog can be found at so take a look and get back to us if you’re interested! (