March 23, 2010 --Spartanburg-based Extended Stay Hotels could emerge from bankruptcy as early as this summer -- though numerous legal deadlines must be met in the interim, and the company's financial advisers are continuing to seek the highest and best offers to rejuvenate the business.

It's a complex process that began this past June when the company filed for Chapter 11 bankruptcy protection, citing a sharp downturn in business and a cash flow that wasn't able to keep up with its $7.4 billion debt.

According to filings, Extended Stay posted $7.1 billion in assets, $7.6 billion in liabilities and revenue of about $1 billion for 2008.

This month, the company accepted a $905 million offer from a consortium of investment firms led by Greenwich, Conn.-based Starwood Capital Group. The consortium includes TPG Capital in Fort Worth, Texas, and Five Mile Capital Partners in Stamford, Conn.

That offer -- which still needs U.S. Bankruptcy Court approval -- would provide Extended Stay with a $450 million cash infusion to pay for operations, capital projects and interest expense; $200 million to pay down debt; and $255 million available to stakeholders who want to sell their equity in the company for cash at a rate of 70 percent.

Capital expenses would be costs associated with renovating older properties, for instance. Extended Stay has about 685 hotels in North America and employs about 10,000 people. About 165 employees are based at the management arm of the company at its Spartanburg headquarters.

Extended Stay spokeswoman Jennifer Kearney deferred all questions to Ari Lefkovits, a director at the New York-based financial advisory firm Lazard. Lazard is handling Extended Stay's bankruptcy.

"We are working at a feverish pace ... to get the company out of bankruptcy, because we believe that's in the best interest of the company, and its employees and all of its stakeholders," Lefkovits said.

Lazard believes Extended Stay is worth $2.8 billion to $3.6 billion. The Starwood-led offer would value it at about $3.9 billion upon closing.

That supersedes an earlier offer -- since terminated -- between Extended Stay and another group of investors.

"It's a balancing act," Lefkovits said. "On one hand, you want to expedite the process and get the company out of bankruptcy. On the other hand, we want to make sure we have the best bid."

Under the deal on the table, Starwood would acquire about 50 percent interest in Extended Stay. Its chief executive officer, Barry Sternlicht -- the hotel magnate who founded Starwood Hotels & Resorts and currently heads a luxury hotel chain that includes the Crillon in Paris -- would become Extended Stay chairman.

Tom Johnson, a spokesman for the Starwood-led consortium of investors, would not comment on whether those investors would terminate any Extended Stay employees, move the headquarters or sell any pieces of the business. Such questions were "premature" until a deal is finalized, he said.

"The point of the deal is so the firm is not financially strapped anymore -- so it would come out of bankruptcy with a much healthier balance sheet," Johnson said. "Barry Sternlicht is one of the country's most renowned real estate investors. He's run hotels before. He runs some now, but they're based in Europe. He knows the industry and how to build customers in the industry better than anybody. He sees a good opportunity here to buy a company, make some changes and grow it going forward."

Since the fall, Lazard has been contacted by and has reached out to a number of potential investors to see who is interested. News of Extended Stay's bankruptcy filing was highly publicized and generated some of the interest on its own, Lefkovits said.

If the courts confirm the current plan by June 4, then the parties have up to 18 days to merge.

"We are committed to working with any party who has the wherewithal to put in a higher bid," Lefkovits said. "Our intent is to find the best bid and to work with that bidder to close the transaction quickly."

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