A recent decision in the protracted litigation by lenders of Extended Stay to recover under guaranties executed by owners of Extended Stay highlights the need for clear and unambiguous drafting in intercreditor agreements. Reversing a trial court holding that the junior lenders had an exclusive right to pursue guaranty claims, the appellate court determined that the applicable language in the intercreditor was ambiguous as to the priority between the senior lender and the mezzanine lenders, and certainly did not support an outright dismissal of the senior lender’s claim to recover under the guaranties.
In connection with the financing of its purchase of the Extended Stay hotel businesses, David Lichtenstein and Lightstone Holdings executed nonrecourse carve out guaranties with the senior lender and each tranche of the junior mezzanine lenders, obligating them to pay up to $100 million in the event any of the borrowers committed so-called “bad boy” acts, which included the filing of a voluntary bankruptcy petition. The relative rights of the lenders with respect to Extended Stay and the guarantors were set forth in an intercreditor agreement. In June 2009, Extended Stay filed a voluntary bankruptcy petition, triggering the guaranty claims.
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