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Lessons In CMBS Semantics

The CMBS lawyers involved with the Extended Stay bankruptcy must be having a field day with the tightrope walking real estate investor David Lichtenstein is doing to save his skin. Under a proposed bankruptcy restructuring plan, Extended Stay would see $4.8 billion in debt wiped out and Lichtenstein would be indemnified from $100 million in bad boy payments. While the plan has gained support from senior CMBS bondholders including Cerberus and Centerbridge, junior bondholders such as Five Mile Capital Partners are having no part of this and suing.

The junior bondholders argue they are getting a raw deal relative to the senior bondholders and the loan documents prohibit the likes of Cerberus and Centerbridge from taking actions that improve their position at the expense of other investors. However, Lichtenstein's camp can take sick comfort in the fact Cerberus and Centerbridge simply verbally agreed to the restructuring plan and have no contracts binding them to the restructuring plan. Consequently, with a couple phone calls Lichtenstein may have deftly saved himself $100 million and screwed over the junior bondholders at the same time.
Behind a Bankruptcy Brouhaha [WSJ]