MAY 28, 2010, 11:29 A.M. ET.

Centerbridge Group Wins Extended Stay Bankruptcy Auction

By MIKE SPECTOR And LINGLING WEI

A group led by Centerbridge Partners LP prevailed in an auction to take Extended Stay Inc. out of bankruptcy protection, offering nearly $4 billion to clinch the purchase of the distressed hotel chain.

The investor consortium, which includes Paulson & Co. and Blackstone Group, put up $3.925 billion for Extended Stay, topping a rival bid from a group led by Starwood Capital Group, said people familiar with the matter.

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Centerbridge Partners prevailed in an auction to take Extended Stay out of bankruptcy protection.
.J.P. Morgan Chase & Co. and Deutsche Bank AG are significant backers of the bid, these people said.

The auction became a marathon bidding war in a 25th-floor conference center at law firm Weil, Gotshal & Manges, beginning at around 10 a.m. and concluding after 4 a.m. The final bid bested Starwood's offer by about $20 million, said a person familiar with the matter.

The Centerbridge group will now own Extended Stay's 680-property hotel chain when the company exits Chapter 11 bankruptcy protection, the people said.

The cash bid, which remains subject to approval by a bankruptcy-court judge, would come close to paying back Extended Stay's $4.1 billion senior mortgage. Other so-called mezzanine debt holders aren't likely to see a recovery.

Starwood, led by Barry Sternlicht, had recently secured some $2.2 billion in financing from Goldman Sachs Group Inc. and Citigroup Inc. in the hopes of winning the battle for Extended Stay. Starwood and Centerbridge had made a series of competing bids for the hotel company leading up to Thursday's auction.

One factor helping the Centerbridge bid: Its banks agreed to make financing available for a few months longer as Extended Stay works its way through bankruptcy court.

Centerbridge's winning bid represents something of a comeback for Extended Stay, which tumbled into bankruptcy last June under the weight of $7.4 billion in debt. Real-estate developer David Lichtenstein loaded up the chain with the debt to acquire the hotel-chain from Blackstone in 2007 for $8 billion.

The deal marked one of the large leveraged buyouts that collapsed amid the worsening real-estate market and overall financial crisis.

But the chain has drawn intense interest as the economy has rebounded, showing that investors, notably large banks, are willing to start making bets again on hotels, shopping centers and other commercial real-estate assets.

The fight for Extended Stay went back and forth, dramatically extending the chain's value. The company initially backed a $450 million offer from the Centerbridge group. Extended Stay then switched its allegiance when the Starwood group—including TPG Capital and Five Mile Capital Partneres LLC—made a $905 million bid.

Centerbridge matched that bid with some sweeter terms. Last month, Blackstone joined Centerbridge and Paulson to bid for Extended Stay. The two suitors then entered a showdown at the auction, with Centerbridge prevailing.

Write to Mike Spector at mike.spector@wsj.com and Lingling Wei at lingling.wei@dowjones.com

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