BANGALORE (Reuters) - Debt-strapped hotel chain Extended Stay Inc filed for bankruptcy protection on Monday, becoming the latest leveraged buyout deal to crater as the U.S. recession culled travel to its chain of 680 hotels.
Extended Stay struggled with a faltering economy and large debt load, following companies such as media group Tribune Co into bankruptcy.
New Jersey-based real estate investment firm Lightstone Group LLC bought Extended Stay from private-equity firm Blackstone Group LP in June last year, shortly before global credit markets began a tightening from which they have yet to recover.
Lightstone borrowed about $7.4 billion for the buyout.
Blackstone has no remaining exposure — either in equity or debt — to Extended Stay, a source familiar with the situation said.
Extended Stay, which filed for Chapter 11 bankruptcy in U.S. Bankruptcy Court in Manhattan, said it had no plans to close or sell any of its hotels.
The Spartanburg, South Carolina-based firm also said it did not seek any debtor-in-possession financing as it generates “significant positive cash flow.”
In documents filed with the court, the company said it was in a liquidity crisis as the recession had a devastating impact on occupancy rates.
Extended Stay said it was “significantly over-leveraged” and the projected cash flows could not continue to service its debt, which is in excess of $7 billion.
In its filing, Extended Stay listed assets of about $7.1 billion and liabilities of about $7.6 billion as of December 2008.
The recession has hit many hotel chains hard because leisure and business customers are traveling less or demanding lower rates.
The company said the contraction of construction and new business development had begun to hurt its revenue stream.
Extended Stay’s hotels are managed by HVM LLC, an affiliate that employs about 10,000 people at any given time to run the day-to-day operations at the hotels, court filings showed.
Earlier this month, investors who had bought debt that helped finance an $8 billion buyout of Extended Stay sued banks that had provided much of the financing, accusing them of scheming to seize the properties and wipe them out.
Extended Stay has roughly 76,000 rooms in some 680 hotels in 44 U.S. states and two Canadian provinces.
The case is In re: Extended Stay Inc, U.S. Bankruptcy Court, Southern District of New York, No.09-13764.
Reporting by Santosh Nadgir; Additional reporting by Megan Davies in New York; Editing by Jarshad Kakkrakandy, Richard Chang