Debt Relief Looms as Another Giant Files Bankruptcy
Debt relief may still be a long way off for Extended Stay Hotels
The recession seems to be holding on, and debt relief may be farther away than consumers had hope. This week, Extended Stay Hotels LLs filed for Chapter 11 bankruptcy protection. The company attributes the filing to reductions in consumer travel as a result of the recession.
The company includes Extended Stay Deluxe, Extended Stay America Efficiency Studios, Homestead Studio Suites, StudioPLUS Deluxe Studios, and Crossland Economy Studios. The company has over 680 hotels throughout the US and Canada that serve long-term business travelers.
What went wrong?
In 2007, Lightstone Group, the largest private real estate investing company in the US, bought Extended Stay Hotels for $7.4 billion, and in mid-2008, business travel started to wane. Because of the economy, businesses have been forced to lay off employees and cut many of the departments that did most of the traveling. Even companies that haven’t had large personnel cutbacks have chosen to save money by reducing travel.
A spokesperson for Extended Stays Hotel stated, “The tightening credit markets, the reduction in construction activity and increased unemployment have decreased the demand for extended-stay accommodations, as fewer construction sites, consulting opportunities and travel plans are coming to fruition.”
Big revenue, much bigger debt
The long-term hotel giant had revenues totaling $1 billion in 2008, but its debt exceeded $7 billion. Revenue per room fell almost 25% throughout the year. Seeking Chapter 11 bankruptcy allows the company to continue to do business while it attempts to restructures its massive debt under court supervision. A spokesperson for the chain stated, “All hotels are open and welcoming guests as usual.”
In terms of infrastructure, the company employs about 10,000 workers nationwide. DeLapp, CEO for the company, stated, “Our end of the business—hotel operations and administration—remains strong on an operating basis. Because we generate significant positive cash flow [we do] not need financing to meet operating obligations.”
Cautious reaction by consumers
As consumers are evaluate the financial turmoil of yet another industry, the immediate reaction is pessimism. Dr. Glinda Merken, an economist at Brown University, said, “Most consumers hear the news of billion-dollar earning companies filing bankruptcy and immediately evaluate their own debt relief solutions…they wonder if they are viable.”
Merken’s assessment is accurate according to a new AP poll that looked at consumer trust and their view of the future. The poll shows that most Americans are closely watching what is going on in the media and that the demise of large financial institution reminds them of their own precarious situations.
Not quick to increase spending
In addition, the poll shows that although the government is encouraging spending, few people are actually doing it. As Mark Reed, an economist for Smartmoney.com stated, “The current administration can encourage spending as much as they want, but it will fall on deaf ears until positive things start happening…No one is rushing out for big-ticket items in the midst of the nightly news, where bad news is packaged up in a half hour and force-fed to the masses.”
Wait-and-see is the order of the day
This bad news is causing consumers to rethink their spending. Many are focusing on saving for future emergencies and formulating practical debt relief solutions. These are their priorities as the post-recession world unfolds to the public. As corporations continue to fall under economic strife, more people are adopting wait-and-see attitudes.