Debt-strapped Extended Stay files for bankruptcy

By Santosh Nadgir

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.