Blackstone is planning to restructure its $20 billion debt used to acquire a large Hilton Hotels portfolio in 2007 in a way that will enable it to reduce the amount its owes by $4 billion.
The New York-based private equity and real estate giant financed the purchase using $20.6 billion of debt and $5.7 billion of equity around the peak of the investment cycle.
According to a report by Bloomberg, as part of the restructuring, the firm could extend repayment of its mortgage loan and the senior mezzanine loans taken out to finance the deal, by two years. In addition, the portfolio’s junior mezzanine loans could also be transformed into preferred equity and Blackstone could provide $800 million to repay part of the debt.
The need to refinance was compounded by the weakening hotel sector brought about by the global economic downturn resulting in less travel and subsequently less need for hotel space last year.
The firm has already written down the value of its own investment in the portfolio by half, a report last summer said. The report said Blackstone invested $1.45 billion in the deal through its fifth buyout fund, Blackstone Capital Partners V, which closed on $21.7 billion in August 2007, but as of the end of 2008, that equity investment had an unrealised value of $742 million.