Starwood fights Extended Stay sale to Centerbridge

Starwood Capital Group, which recently lost an auction to buy bankrupt hotel chain Extended Stay to an investment group led by Centerbridge Partners, plans to fight the deal in court, according to recent filings.

Starwood has filed an objection to the deal with the U.S. Bankruptcy Court in Manhattan, claiming that Extended Stay is worth substantially more than the price that Centerbridge Partners, Paulson & Co. and The Blackstone Group will pay.

Starwood also said that the auction process was flawed because of conflicts. It said that the cash bids required once the auction process was underway did not maximize value, but instead were aimed at paying off only the secured creditors.

It said that unsecured creditors with combined claims of more than $3 billion would receive nothing.

Starwood’s lawyer argued that the bidders in the auction had been forced by secured creditors to submit only cash bids and leave the possible added value of a noncash component on the sidelines.

“It was clear to us and everybody participating that if you didn’t bid all cash, you were not going to succeed at the auction. That chilled our ability to come up with higher value based upon a structured bid,” said Bruce Zirinsky, an attorney with Greenberg Traurig.

Centerbridge and Paulson agreed to pay $3.925 billion in cash for the chain at the May 27 auction, beating out a bid from Starwood and TPG Capital by about $40 million, a source with direct knowledge of the deal told Reuters at the time.

Starwood said that based on projections it provided, Citigroup Global Markets had estimated that Extended Stay would be worth about $4.8 billion to $5.2 billion if it were now trading on the stock exchange.

However, a bankruptcy court judge ruled last week that the auction for the hotel chain had been fairly run, based on the court documents submitted.

Starwood, which is asking for the right to present its own plan for Extended Stay to creditors, also said in documents that the company’s disclosure statement—which would go to creditors for a vote if approved by the judge during the hearing—would not be confirmable as a final plan to emerge from bankruptcy. —Caroline Humer, Reuters