UPDATE 1-Extended Stay in talks with lenders - WSJ

(Updates with company comment)

NEW YORK Dec 8 (Reuters) - The Extended Stay Hotels group is in early talks that could result in turning the hotel chain over to its lenders, The Wall Street Journal reported on Monday.

Extended Stay said in a statement on Monday it "remains in compliance with all of its debt terms."

Lightstone Group, a private real estate firm not known for its hotel investments, bought Extended Stay Hotels group from Blackstone Group LP (BX.N) last year, funding the $8 billion deal with $7 billion of debt.

The highly leveraged deal has hastened Extended Stay's troubles, the Journal said.

Extended Stay, however, said in the statement the company "is profitable on an operating basis, is current with its vendors and intends to remain so." It said it expects to continue to grow the business.

Lightstone did not immediately return a phone call seeking comment. The newspaper said the investment firm declined comment.

It is too soon to say if a takeover by lenders would result in layoffs or hotel closings, people familiar with the matter told the Journal.

As hotel market conditions deteriorate, Extended Stay has been forced into discussions with its lenders, and a transfer of ownership could come within a month or two, people involved in the talks told the paper.

Extended Stay recently hired Lazard Ltd as financial adviser and New York law firm Weil Gotshal & Manges as bankruptcy counsel, the newspaper said.

Extended Stay is still meeting its debt service, but it could default within the next 60 days if the economic downturn continues as expected, people familiar with the matter told the paper.

Revenue per available room, or RevPar, a common hotel industry measure, will be down more than 10 percent this year at Extended Stay, the paper said, citing "someone familiar with the matter."

Extended Stay is not likely to file for bankruptcy protection because of provisions common in commercial mortgage-backed securities deals that would expose more properties of its founder, David Lichtenstein, the paper said.

A more likely path is for Lichtenstein to turn Extended Stay directly over to lenders or to swap enough equity for debt to give bondholders control of the company, the Journal said. (Reporting by Pratish Narayanan in Bangalore and Emily Chasan in New York, editing by Matthew Lewis)