Funds News

UPDATE 1-Extended Stay accepts Starwood reorganization bid

*Extended Stay to switch from Centerbridge, Paulson plan

*Sternlicht’s Starwood Capital Group will be lead bidder

*Attorney: There is “tremendous interest” in hotel chain

NEW YORK, March 17 (Reuters) - Hotel chain Extended Stay America ESAIN.UL plans to accept a reorganization proposal from investors led by Starwood Capital Group, switching its support from an earlier plan by rival private equity bidders, according to an attorney for the company's creditors.

“Starwood has come in with an alternative proposal and the debtors advised us that they will file a motion before the end of the week seeking approval of the Starwood proposal,” said Mark Power, an attorney at Hahn Hessen, representing Extended Stay’s Official Committee of Unsecured Creditors.

Extended Stay, a U.S. midpriced hotel chain, was bought in June 2007 by an investor group led by David Lichtenstein’s Lightstone Group. It was forced into bankruptcy last year after its projected cash flows declined amid the recession and it could not keep servicing more than $7 billion in debt.

The company, which runs over 650 hotels, said earlier this month that it could emerge from bankruptcy protection as soon as June under a plan backed by investors Centerbridge Partners L.P. and Paulson & Co Inc, in exchange for the private equity firms getting a 22.5 percent stake in the reorganized company.

But Starwood, led by real estate developer Barry Sternlicht, made a binding offer to the company over the weekend, saying its plan would be better.

Starwood has been offering to inject $600 million in new equity into the reorganized company, compared with the $450 million that Centerbridge and Paulson had proposed, according to court papers.

Under the new plan, Starwood would become the “stalking horse”, or lead bidder, offering to take the company out of bankruptcy. Its bid could still be topped.

“We anticipate there will be a period for interested parties to do due diligence and submit higher and better proposals,” Power said.

“There’s tremendous interest in the process in the market. We’re hopeful that the process will generate further interest.”

Starwood Capital is known for leading the restructuring and expansion of Starwood Hotels & Resorts Worldwide Inc HOT.N in the 1990s and starting the W hotel chain.

Starwood is working on its bid for Extended Stay with affiliates of Five Mile Capital and TPG Capital [TPG.UL], according to court papers.

An attorney for Extended Stay did not return a call seeking comment on Wednesday.

The case is In re: Extended Stay Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-13764. (Reporting by Emily Chasan; additional reporting by Paritosh Bansal. Editing by Robert MacMillan)