Blackstone Group LP (BX:US), Centerbridge Partners LP and Paulson & Co. plan to sell $3.5 billion of debt to refinance their 2010 purchase of Extended Stay Hotels, enabling them to recoup about half their equity investment, according to two people with knowledge of the transaction.
JPMorgan Chase & Co. (JPM:US) and Deutsche Bank AG (DBK) will arrange $2.5 billion of loans using the commercial mortgage-backed securities market and $1 billion of mezzanine loans, said the people, who asked not to be identified because the details aren’t public.
The investment companies bought Extended Stay at a bankruptcy auction for $4.2 billion, using $2.7 billion of debt financing and $1.5 billion of equity, invested equally by the three firms. Since they bought Extended Stay, when the commercial real estate market was close to a bottom, its cash flows have increased more than 40 percent amid a recovery in the hotel business, the people said. The owners invested about $420 million to renovate rooms and consolidate properties under the Extended Stay brand name.
Armel Leslie, a spokesman for the New York-based hedge fund run by billionaire John Paulson, declined to comment. Peter Rose, a spokesman for New York-based Blackstone, and Susanne Clark, a spokeswoman for Centerbridge, didn’t immediately respond to requests for comment. Centerbridge, based in New York, was co-founded by Mark Gallogly, a former Blackstone partner.
Blackstone previously bought the lodging company, when it was known as Extended Stay America, for $3 billion in 2004, after the 2001 terrorist attacks caused hotel revenue and property values to tumble. It sold the company for $8 billion in 2007 to investors led by Lightstone Group, then joined Centerbridge and Paulson to buy it again after the global credit crisis forced Extended Stay into bankruptcy.
The planned debt sale was reported earlier today by the Wall Street Journal.
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