Travelodge agrees rescue deal with landlords and creditors
on 04/09/2012 16:45:45
Creditors - including landlords across the UK - voted in favour of the plan that will see rent payments slashed across more than 100 hotels and 49 hotels offloaded to other operators.
The company voluntary arrangement (CVA) is designed to allow Travelodge to exit poorer performing leases while also free itself of a crippling debt burden.
A significant number of the properties are owned by millionaire Nick Leslau's investment vehicle Prestbury, which is understood to have supported the move.
The group, which operates more than 500 hotels across the UK, Ireland and Spain and employs more than 6,000 staff, secured backing from 97% of Travelodge creditors that voted, including 96% of landlords. It required 75% of creditors to back the deal.
It will now offload 49 hotels to other operators, while the landlords of a further 109 will take a 25% cut in rent. The remaining 347 will be unaffected.
Under the deal, Travelodge will be able to shake off some of the mammoth debts it has inherited from former private equity owners.
Bank debt of £235m (€296.6m) will be written off and £71m (€89.6m) will be repaid, reducing total bank debt to £329m (€415.25m) - which will be extended 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 (€852m) for Travelodge in 2006.
Today's agreement will see its owners inject at least £75m (€94.66m) into the company, with £55m (€69.4m) invested in a refurbishment programme covering 11,000 rooms and 175 hotels.
Travelodge has traded well since the financial crisis and the deal will put its future on a stable footing by strengthening its balance sheet and reducing the interest rate on its debt.
The UK's second biggest budget hotel chain behind Whitbread's Premier Inn, it reported a 20% increase in profits last year to £55m (€69.4m).
CVAs are seen as controversial and the British Property Federation (BPF) has called for a review of the arrangements, which it claims leave landlords out of pocket.
BPF chief executive Liz Peace said in response to the Travelodge plans that "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".
But accountancy firm KPMG, which organised the CVA, said landlords at affected hotels will see a return of 23.4p in the pound compared with just 0.2p if the company is placed into administration.
Mr Leslau's property vehicle owns Thorpe Park and Alton Towers, which he leases to Merlin Entertainment.
The property tycoon featured in Channel 4's 'Secret Millionaire' programme and is a part owner of Saracens Rugby Union club.