Travelodge to offload hotels as landlords back massive rent cut

BUDGET hotel chain Travelodge is to dispose of nearly one in ten of its hotels and see its rent bill slashed at 100 more after its landlords voted to back a rescue deal to secure the group’s future.

The group – which operates more than 500 hotels across the UK, Ireland and Spain and employs more than 6,000 staff – will offload 49 hotels to other operators as part of a company voluntary arrangement (CVA).

Its hotels in Ayr and Kilmarnock will be among those to go, as well two in Edinburgh – at Shandwick Place and at Belford Road.

The plan is designed to allow Travelodge to exit poorer-performing leases while also free itself of a crippling debt burden. It has said it wants to work with landlords to identify new operators for the hotels and does not expect any job losses as a result of the transfers.

The landlords of the hotels being sold have been asked to accept a 45 per cent reduction in rent. A further 109 hotels will remain part of Travelodge but will see rents reduced by 25 per cent.

The British Property Federation had previously criticised the CVA proposal because it made a minority of landlords take a “big hit to keep a far bigger business afloat”. However, creditors secured 23.4p in the pound from the CVA whereas they had been warned they would see a return of just 0.2p in the pound if the company was placed into administration.

In the end, 97 per cent of Travelodge creditors that voted, including 96 per cent of landlords, approved the CVA. It required a minimum of 75 per cent of creditors to back the deal. Brian Green, restructuring partner at KPMG and one of the “supervisors” of the CVA, said it included a claw-back clause to enable landlords to share in the turnaround of the business, and the assurance that the company will pay the business rates on the affected properties until replacement occupiers are found.

“We are also offering landlords the option to extend their lease terms, which has not been offered in a CVA before and is an addition designed to offer as much value to landlords as possible,” he said.

A significant number of the affected properties are owned by millionaire Nick Leslau’s investment vehicle Prestbury, which is understood to have supported the move.

Under the terms of a wider deal to ensure the future of the business, Travelodge will also be able to shake off some of the mammoth debts it has inherited from former private equity owners.

Its debt restructuring will involve the write-off of £476 million of shareholder loan notes, the repayment of a further £71m of bank loans and the extension of the maturity on the remaining £329m of debt until 2017.

The company’s three main lenders – Goldman Sachs and two US hedge funds, Avenue Capital and GoldenTree Asset Management – have already seized control of the chain from Dubai International Capital, which paid £675m for Travelodge in 2006.

They will now provide a cash injection of £75m, with £55m being spent on refurbishing 175 of Travelodge’s hotels starting early next year.

The UK’s second biggest budget hotel chain behind Whitbread’s Premier Inn, it reported a 20 per cent increase in profits last year to £55m.