Commenting on the company voluntary arrangement (CVA) proposal in today’s announcement by Travelodge, Richard Fleming, UK Head of Restructuring at KPMG and proposed ‘supervisor’ 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. The company needs to secure at least 75% creditor approval for its CVA. ” Brian Green, restructuring partner at KPMG and second proposed supervisor of the CVA, added:
“We are constantly seeking to improve and evolve our CVA structures, based on feedback from the landlord community. Accordingly, we are again including a ‘claw back’ mechanism for landlords so they can share in the turnaround of the restructured company’s future and landlords are also being offered the option of lease extensions. 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.
“49 hotels, out of a total of 505, have been identified for transfer to other operators. The landlords of these hotels are being asked to accept a 45% reduction in rent until the hotels are transferred. A further 109 hotels have been identified as being viable at a reduced equivalent monthly rent of 75%. 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 key facets of the Travelodge CVA are:
• All of the Travelodge hotels currently trading will remain open.
• A total of 347 hotels, 2 offices and 4 restaurants will be retained at current rents and current payment terms throughout the CVA period.
• 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 company is seeking to transfer 49 hotels to other operators within the next six months in order to minimise the impact on landlords and other creditors. In the meantime, rent on these hotels will be reduced to 55% for six months, which is similar to the previous high profile CVAs KPMG has supervised in recent years.
• An identical compromise is to be applied to 19 leases of premises which have been sublet to other tenants and to 18 leases of vacant sites.
• The company will continue to pay rates, which is of great importance to landlords, until such time as replacement occupiers/operators are found.
• The CVA will contain a so-called ‘claw back’ clause which allows the compromised landlords to share in the turnaround of the business.
• Furthermore the 52 development sites where leases have exchanged but not yet completed will continue to be developed and proceed to opening.
A detailed CVA proposal document is expected to be made available to Travelodge creditors via a dedicated website today. The creditors will vote on the CVA on 4th September 2012. KPMG will spend the next three weeks in talks with creditors to ensure they understand the full detail of the proposal.
The CVA is being undertaken as part of Travelodge’s financial restructuring which will secure a long term future for the business. The key terms of the financial restructuring are as follows:
• £75m of new cash to be injected into the Company
• £55m of the new cash injection will be invested into a major refurbishment programme across the estate covering over 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
• Repayment date of the remaining debt extended to 2017 and cash pay interest reduced significantly to a rate of 0.25% above LIBOR through to the end of 2014
