By Tom Hals
WILMINGTON, Delaware (Reuters) - Blackstone Group LP
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A bankruptcy trust that is pursuing legal claims on behalf of Extended Stay's creditors filed the lawsuit late on Tuesday. It also sued DL-DW Holdings LLC, which David Lichtenstein formed to carry out the $8 billion buyout in 2007.
The Extended Stay chain of about 680 hotels filed for bankruptcy in 2009, burdened by the buyout debt and a deep recession.
"The grossly inflated purchase price was engineered by the Blackstone-affiliated sellers looking to maximize their profits, working in concert with a buyer that assumed little to no risk of loss," the lawsuit said.
Blackstone said the lawsuit was without merit.
"The real cause of the company's bankruptcy was an economic tsunami," Blackstone said in a statement. The company said it "would not have taken the unusual step of retaining an equity participation in Extended Stay" if it had known at the time of the sale that the recession was coming.
Extended Stay emerged from bankruptcy in October as an investment group -- including Blackstone, Paulson & Co and Centerbridge Partners -- bought the company for $3.93 billion.
The bankruptcy trust was set up to allow Extended Stay to emerge from bankruptcy while creditors could continue to pursue legal claims, including those against the parties responsible for the bankruptcy.
The trust also sued Bank of America
The complaint accuses Citigroup of a conflict of interest because it was advising the buyers of Extended Stay while at the same time coordinating Blackstone's IPO.
The lawsuit said Citigroup wanted to position Blackstone for its IPO in part by closing the Extended Stay sale.
Citigroup and Bank of America did not immediately return calls requesting comment.
(Additional reporting by Santosh Nadgir in Bangalore; Editing by Lisa Von Ahn)