UK: Travelodge confirms plans to off-load 49 hotels
BUDGET hotel group Travelodge today confirmed plans to off-load nearly 50 of its sites through a deal with its landlords.
The company is seeking approval for a Company Voluntary Arrangement (CVA) under which it seeks to transfer 49 of its hotels to other operators and to cut the rent it pays on 109 other properties.
Accountants KPMG, two of whose corporate recovery partners are proposed as supervisors of the CVA, said that all Travelodge hotels currently trading would remain open for the time being, with no redundancies planned, and suppliers would continue to be paid in full.
However, Travelodge is seeking to transfer 49 hotels to other operators within the next six months, during which time rents on the properties will be reduced by 45%, and it wants to cut the rents on 109 of the hotels it plans to retain by 25% for the next three years.
Among the hotels Travelodge is seeking to transfer are those at Beacon Hill, at the junction of the A14 and A140 near Needham Market, and at Clacton-on-Sea, while the hotels which it aims to retain at reduced rents include those at on the A11 at Barton Mills, near Mildenhall, and on the A120 at Great Dunmow.
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A total of 347 other hotels, plus four restaurants and two offices, will be retained by Travelodge at current rents and payment terms throughout the CVA period.
These include the new Travelodge which opened in the centre of Ipswich earlier this month and those at Capel St Mary, Stowmarket, Lowestoft, Feering, near Colchester, and Chelmsford.
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Richard Fleming, UK head of restructuring at KPMG and one of the proposed supervisors 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.”
Travelodge, which is owned by private equity investor Dubai International Capital, needs to secure at least 75% creditor approval for its CVA proposal to become binding. A vote will be conducted at meeting on September 4.
The terms offered include a “claw back” mechanism designed to enable landlords to share in the benefits of the turnaround plans and landlords will also be offered the option of lease extensions.
“We are constantly seeking to improve and evolve our CVA structures, based on feedback from the landlord community,” said Brian Green, a restructuring partner at KPMG and the second proposed supervisor of the CVA.
“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.”
He added: “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.”
The wider financial restructuring of Travelodge includes plans for the injection of �75million of new cash, of which �55m would be invested in a major refurbishment programme involving nearly 200 of its hotels.
In addition, 52 new sites where leases have exchanged but not yet completed will continue to be developed.
Bank debt of �233m will be written off and �71m repaid, reducing total bank debt from �633m to �329m, and loan notes of �476m will be written off completely
Repayment of the remaining debt would be extended to 2017 and interest reduced significantly to a rate of 0.25% above LIBOR through to the end of 2014.