Here is an article from the Financial Times. It summarizes Centerbridge's and John Paulson's $4 billion acquisition of the bankrupt hotelier. Lightstone Group bought Extended Stay in April 2007 for $8 billion, using mostly CMBS debt. The debt was $4.1 billion of senior debt and $3.3 billion of mezzanine debt. The Centerbridge deal will repay the senior debt, but wipe out the mezzanine debt, of which taxpayers owned $750 million. Here is how the CMBS structure complicates deals that go bad:
The Extended Stay bankruptcy offers a rare insight into how securitisation complicates the Chapter 11 process. There were 18 separate classes of commercial mortgage-backed securities worth $4.1bn. According to documents, 90 per cent of each class would have to approve any agreement - an arrangement that could have delayed a settlement indefinitely. But the servicer in charge of the trust agreed to an arrangement that allowed pivotal classes of debtholders to control the outcome.The article does not mention this, but I think these bankruptcy and purchase hinged, in part, on Lightstone's founder, David Lichtenstein, being relieved of approximately $100 million of personal liability in the event of default.