Source: Karen Bryan
Travelodge has today announced that it will be undertaking a CVA, through which it will seek to transfer 49 hotels to other operators.
The CVA, drawn up by the three investors in Travelodge, GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs, will affect 30% of the hotel firm’s portfolio.
The rent on the 49 hotels to be transferred will be reduced to 55% for the six month period during which it will seek to transfer the leases to other operators.
The same deal will be applied to 19 leases of premises which have been sublet to other tenants and to 18 leases of vacant sites.
A further 109 hotels will be retained at a reduced equivalent monthly rent of 75% for three years before reverting to a market-based rent for the remainder of the lease terms.
The remaining 347 hotels, two offices and four restaurants will be retained at current rents and current payment terms throughout the CVA period.
The CVA will also contain a claw back clause, as used in the Fitness First CVA, which will enable landlords to share in the turnaround of the business.
The 52 development sites where leases have exchanged but not yet completed will continue to be developed and proceed to opening. Travelodge will also continue to pay rates, which is of great importance to landlords.
The creditors will vote on the CVA on 4 September 2012. KPMG said it estimates 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.
The CVA is being undertaken as part of Travelodge’s financial restructuring which comprises £75m of new cash to be injected into the company. Some £55m of this cash injection will be invested into a major refurbishment programme across the estate covering more than 11,000 rooms and almost 200 hotels. The refurbishment programme will commence in early 2013 and continue through to summer 2014
Bank debt of £233m will be written off and £71m repaid, reducing total bank debt from £633m to £329m. Loan notes of £476m will be written off completely. The repayment date of the remaining debt will be extended to 2017 and cash pay interest reduced to a rate of 0.25% above LIBOR through to the end of 2014.
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.”
Richard Fleming, UK head of restructuring at KPMG and proposed ‘supervisor’ of the CVA, added: “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 ofwhich 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.”
12 October 2012
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