Starwood Capital-Led Consortium Agrees to Invest Up to $905 Million in Extended Stay Hotels

Starwood Capital-Led Consortium Agrees to Invest Up to $905 Million in Extended Stay Hotels

Extended Stay’s Board Determines Proposal from Starwood Capital, TPG Capital and Five Mile Capital Partners is Superior to Previous Offer from Centerbridge Partners and Paulson & Co.

With a Valuation of Approximately $3.9 Billion, Transaction Would Significantly Strengthen Extended Stay’s Balance Sheet, Reduce its Debt Load and Boost Cash Reserves Starwood Capital’s Barry Sternlicht, One of the World’s Most Respected Hotel Executives, Would Serve as Chairman of Extended Stay

Starwood Capital Group, TPG Capital and Five Mile Capital Partners announced today that 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 earlier today, would allow Extended Stay, which would be valued at approximately $3.9 billion post-transaction, to emerge from bankruptcy with a significantly stronger balance sheet, reduced debt load and significant cash reserves to invest in its properties and operations. The Extended Stay Board of Directors has determined 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 approval of the Bankruptcy Court.

“We are excited about the prospects of acquiring Extended Stay,” said Barry Sternlicht, Chairman and CEO of Starwood Capital Group. “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 Capital has unparalleled experience in the hospitality sector and we believe we are uniquely positioned to work with the team to help the company flourish and maximize the company’s potential for all stakeholders.”

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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 pay down, 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.

Under the terms of the agreement, affiliates of Starwood Capital Group will provide approximately half of the new equity, with affiliates of TPG and Five Mile Capital equally providing the remaining amount. Mr. Sternlicht would serve as Chairman of Extended Stay. Mr. Sternlicht is the founder of Starwood Hotels & Resorts, where he served as Chairman and CEO for nearly 10 years as the company grew into one of the world’s leading hotel and leisure companies. Mr. Sternlicht also serves as the Chairman of Groupe du Louvre, which owns some the world’s best-known luxury hotels, including the Crillon in Paris, and one of the world’s largest budget hotel companies, Louvre Hotels, with more than 800 hotels across Europe. In addition, a controlled affiliate of Starwood Capital acquired Golden Tulip out of bankruptcy in 2009, adding a network of more than 230 hotels in almost 40 countries to its portfolio.

Miller Buckfire & Co., LLC is serving as the consortium’s financial advisor and Greenberg Traurig, LLP is serving as its legal advisor.