Member Article

Travelodge saved in major refinancing deal

Travelodge has agreed financial restructuring in order to help the chain, that has been struggling with debt.

The company has worked alongside its three investors, GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs, to reach agreement on its financial restructuring, which will be undertaken in conjunction with a Company Voluntary Arrangement (CVA).

These investors will inject £75m into the the Company, and a £235 of bank debt will be written off.

49 of the company’s hotels will be sold off, while Travelodge also want to pay reduced rent on a further 109.

KMPG is supervising the CVA process, and will be leading discussions with landlords.

Commenting on today’s announcement, Grant Hearn, CEO, 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.

“Once this joint process is completed, Travelodge’s debt, interest costs and lease liabilities will be significantly reduced. This new appropriate level will provide greater security for our staff, suppliers, landlords and developers. This is a successful brand with millions of customers and the Company will emerge in excellent shape from this process.”

A spokesperson from Avenue Capital Group, added: “We believe that this financial restructuring, along with the CVA process, will enable Travelodge to emerge as a stronger business and to take advantage of the great opportunities available to it as the UK’s leading budget hotel operator.”

Richard Fleming, UK Head of Restructuring at KPMG and proposed ‘supervisor’ of the CVA, said: “The impact of the economic downturn on Travelodge’s business has been compounded by a large debt burden and expensive lease arrangements.

“Today’s CVA proposal is one facet of a wider Travelodge restructuring plan to tackle those leases which are proving unsustainable, the majority of which were agreed during the pre-2008 property peaks. With the support of its lenders, shareholders and landlords, the company will be able to reshape its debt and operational structure to a model more suited to these straitened times. The company needs to secure at least 75% creditor approval for its CVA. “

Brian Green, restructuring partner at KPMG and second proposed supervisor of the CVA, added: “We are constantly seeking to improve and evolve our CVA structures, based on feedback from the landlord community.

“Accordingly, we are again including a ‘claw back’ mechanism for landlords so they can share in the turnaround of the restructured company’s future and landlords are also being offered the option of lease extensions. The detailed terms of the CVA reflect those we have advised on since the start of the downturn. No hotels will be closed on day one, nor will there be any redundancies and suppliers will continue to be paid on time and in full.

“49 hotels, out of a total of 505, have been identified for transfer to other operators. The landlords of these hotels are being asked to accept a 45% reduction in rent until the hotels are transferred. A further 109 hotels have been identified as being viable at a reduced equivalent monthly rent of 75%. Overall, we estimate landlords of affected hotels will see a return of up to 23.4p in the £1 versus 0.2p in the £1 in the alternative of administration.”

This was posted in Bdaily's Members' News section by Tom Keighley .