Landlords may pull the plug on plans to slash Travelodge’s costs

By ERIKKA ASKELAND
Published on 18/08/2012 00:00

LANDLORDS are expected to revolt against plans by the billionaire owners of Travelodge to slash the budget hotel chain’s costs.

A rescue package proposed by the company’s owners – two Manhattan-based hedge funds specialising in distressed assets and debt – will require the owners of 158 of Travelodge’s 512 hotels to accept significant rent reductions.

The rescue deal also hinges on proposals for a controversial company voluntary arrangement (CVA) which will see Travelodge landlords take “haircuts” on rents.

Avenue Capital, which controls funds worth $12.5 billion (£79.5bn), and Golden Tree Asset Management, with assets of $15bn, have agreed a debt for equity swap with the chain’s lenders. As part of the deal, the hedge funds, which are based in New York’s leafy Park Avenue, will see £717m wiped off the company’s secured and unsecured debt pile to a more manageable £329m.

It is understood its former owners, Dubai International Capital (DIC), will walk away from its £400m stake in Travelodge, and the new owners have pledged to inject £75m into the chain, including £55m to refurbish hundreds of hotel properties.

Despite struggling with over £1bn of combined secured and unsecured debt, the budget hotel chain last year saw profits rise 20 per cent to £55m and revenues up 16 per cent to £370m.

For the CVA this to go through, it will need the support of 75 per cent of creditors at a vote on 4 September. According to industry sources, “there’s a stronger chance than in other CVAs of some landlords revolting”.

Under the terms of the CVA, 49 hotels - about a tenth of the group’s portfolio - will be “transferred” to new operators. At the same time, the landlords of these hotels have been asked to accept a 45 per cent reduction in rent. A further 109 hotels have been identified as being viable at a reduced equivalent monthly rent of 75 per cent.

The British Property Federation (BPF) has called for a review of rules behind the CVA on the back of the proposal.

BPF chief executive Liz Peace said: “Once again landlords are being asked to play a significant part in rescuing a business, and a minority at that who are being asked to take a big hit to keep a far bigger business afloat.”

Brian Green, restructuring partner at KPMG and second proposed supervisor of the CVA, argued that affected hotel owners will see a return of up to 23.4p in the £1 versus 0.2p in the £1 in the alternative of administration. He added that the deal included a “clawback” mechanism so “landlords can share in the turnaround of the restructured company’s future”.

He said: “We are constantly seeking to improve and evolve our CVA structures, based on feedback from landlords.” .

Grant Hearn, the chief executive of Travelodge, said: “The financial restructuring, including the CVA, will leave Travelodge in a much stronger position going forward and will ensure a long-term, sustainable future for the business.”