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