Travelodge Secures Future With Debt Write-Off
Debt-laden Travelodge is now effectively owned by its lenders after an overhaul of the business to secure its financial future.
The budget hotel chain has agreed a restructuring that will see its £635m debt pile reduced to £329m, with the deadline for the repayment of that balance being extended until 2017.
In addition, £75m of new cash will be injected into the business by the owners of the debt - investment bank Goldman Sachs and two US hedge funds - to help fund major refurbishment work on its properties, none of which it owns.
It means Dubai International Capital, which had owned Travelodge since 2006, loses an estimated £400m as a result of the debt-for-equity swap.
In a statement, Travelodge said: "This will be undertaken in conjunction with a Company Voluntary Arrangement (CVA), which was launched today and will reduce levels of rent at certain sites.
"Travelodge has worked hard alongside its three key investors, GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs, to reach agreement on its financial restructuring and believes that it provides further stability to the business and demonstrates confidence in the Company."
Under the terms of the proposed CVA, the company plans to find new operators for 49 of its 500 hotels seen as not viable.
At this stage, Travelodge says it does not anticipate any closures or job losses.
It is seeking rent reductions at 109 sites.
175 of its hotels will benefit, the company said, from its refurbishment programme which it estimates at £55m.
CEO Grant Hearn 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 ...to provide greater security for our staff, suppliers, landlords and developers."
He concluded: "This is a successful brand with millions of customers and the Company will emerge in excellent shape from this process."
For the rescue deal to go through, it will need the support of 75% of creditors at a vote on September 4. As it was announced, the British Property Federation called for a review of controversial CVAs, which leave landlords out of pocket and allow companies to write off debts.