Creditors are suing Blackstone Group LP over its 2007 sale of Extended Stay Inc., claiming the private equity giant “siphoned” US$2.1 billion as part of a leveraged buyout.
The creditors claim the deal ultimately left Extended Stay insolvent and that Blackstone acted without regard to the hotel company’s long-term financial health.Extended Stay was acquired out of bankruptcy in 2009 by a group that included Blackstone. The US$3.9 billion acquisition also involved Paulson & Co. Inc. and Centerbridge Partners LP, neither of which are named in the lawsuits.“Blackstone siphoned US$2.1 billion of value from the debtors, rendering them insolvent, undercapitalized and unable to survive,” according to twin lawsuits filed this week in federal and state courts in New York by a creditor trust. “The defendants were well aware of the financial harm of the [leveraged buyout], but nevertheless caused or allowed it to happen.”New York City-based Blackstone sold Extended Stay to Lightstone Group LLC for US$8 billion at the peak of the market in 2007. South Carolina-based Extended Stay, which ranks as the 18th largest hotel company in the world, filed for bankruptcy two years later. Lightstone and its principal, David Lichtenstein, are also named as defendants in the lawsuits.In a statement, Blackstone dismisses the lawsuits as meritless. “The real cause of the company’s bankruptcy was an economic tsunami, which resulted in across-the-board revenue per available room declines of more than 20%. This was an industry-wide phenomenon that landed every large lodging transaction executed in 2006-2007 in bankruptcy, foreclosure or restructuring.”Extended Stay was acquired out of bankruptcy in 2009 by a group that included Blackstone. The US$3.9 billion acquisition also involved Paulson & Co. Inc. and Centerbridge Partners LP, neither of which are named in the lawsuits.
