Travelodge In Eleventh Hour Mercy Vote For Hotel Chain's Future

Facing A Restless Night's Sleep? Travelodge Asks Landlords To Slash Rent Payments

Travelodge, the hotel giant that operates more than 500 hotels across the UK, Ireland and Spain and employs more than 6,000 staff, will ask its landlords to back a controversial deal to secure its future.

The beleaguered hotel chain is proposing a Company Voluntary Arrangement (CVA) which will see it offload 49 hotels to other operators - equivalent to 8% of its stake - while asking the landlords of another 109 to accept a 25% cut in rent.

Travelodge needs 75% of its creditors to agree to the CVA in order for it to go through.

If the CVA application is successful, there will be no material impact on the operational running of the business, with all suppliers expected to be paid as normal and customers experiencing no changes to bookings.

Questions have already been raised about the deal however, principally from the British Property Federation, which complained landlords were being asked to play a significant part in rescuing the business.

It has previously called for the use of CVAs to be reviewed, since landlords were left out of pocket.

But a report on Press Association said accountancy firm KPMG, which is organising the CVA, said this was the better choice for landlords, since the affected hotels will see a return of 23.4p in the pound rather than just 0.2p if the budget hotel chain was placed into administration.

This latest attempt to save Travelodge follows last month's restructuring deal, which saw it reduce its £635m debt to £329m, as well as an extension of the deadline to repay that debt to 2017.

The new owners of Travelodge under the debt-for-equity swap, Goldman Sachs and two US hedge funds, also pledged to inject £75m of new cash - to help fund major refurbishment work on its properties.

Travelodge's previous owner, Dubai International Capital, which had owned Travelodge since 2006, lost an estimated £400m as a result deal.

Over the past few months Travelodge has performed relatively well, partly boosted by new ventures and promotions, such as opening its first designer outlet hotel, based at the UK’s largest fashion designer shopping outlet, Cheshire Oaks in Ellesmere Port.

It's latest offer is the ‘Give Britain a Break’ campaign, which offers families a stay for £25.50 per night, as well as offering savings for numerous tourist attractions, restaurants, and transport companies.

Why is Travelodge in trouble?

Unlike most hotel chains, Travelodge rented its premises rather than bought them - at the time of its launch it was seen a good way to build the business because it was less capital intensive and allowed for faster growth.

However, the downside is that the cash flow requirements on the business are onerous.

Investment manager at Charles Stanley, Louis Coke, said the deal where Travelodge was sold to Dubai International Capital - which involved a large amount of debt - was also worth considering.

"Leveraged deals are fine whilst the economy is quite buoyant- the profits and cash flow from the business can repay the debt," he said.

"However, as the economy subsequently came off with a bump, the company struggled with the costs of its debts, which resulted in the owners of its debt (Goldman Sachs and two New York based hedge funds) taking the company over in a debt-for-equity swap."

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