Commercial property hotel chain Travelodge, known for its £10-a-night rooms, is to be taken over by two US hedge funds that stand ready to add some much needed cash and save the budget hotel chain from falling into administration.
The debt-laden commercial property company, which has more than 740 hotels in Britain, Spain and Ireland, and employs more than 6,000 people, needs to raise £60m to survive.
It is owned by Dubai International Capital (DIC), a private equity house supported by the Gulf state, which stands to lose up to £400m.
Two New York-based hedge funds, Golden Tree Asset Management and Avenue Capital, which have been creditors to commercial property hotel chain Travelodge since 2006 when DIC bought the business, have vowed to step in with £60m, a Travelodge spokesperson said, and intend to take control of the commercial property hotelier in return. They are talking to Travelodge’s main lenders-Barclays, Investec, Babson and the Royal Bank of Scotland-about whether they want to be involved in the rescue.
An overwhelming £10m of emergency cash was injected by creditors in recent weeks. It is in the hedge funds’ interest to keep commercial property hotel Travelodge afloat because bankruptcy would wipe them out as the junior lenders. After pumping in more money, Golden Tree and Avenue plan to take control of the commercial property firm from DIC through a debt-for-equity swap. There are hopes this process could be wrapped up in the next two months.
Dubai International Capitals ‘equity stake would be wiped out unless it injects more money to retain its investment, which is thought unlikely. It bought the firm Permira in 2006 for £675m, backed by loans of £478m.
Hedge fund Golden Tree said it had been a “very supportive lender to Travelodge for many years and continues to work closely with the company and management.”
Some believe commercial property hotel chain Travelodge is in trouble mainly because the 2006 takeover loaded it with too much debt. The hotel chain now has borrowings of £530m and an annual interest bill of £100m.
Just last month commercial property fashion chain Peacocks collapsed with £600m of debts.
Travelodge is offering a £10 nightly rate between April and August. It stressed its commercial property budget hotels were performing well as the economic downward spiral was forcing more families to holiday in Britain. Profits for last year climbed 20 per cent while revenues rose 16 per cent to £370m.
A spokesperson said: “The budget hotel sector is growing. People are staying in the UK more than going abroad. Rooms were basic but cheap, and the spokesperson noted: “When you turn the lights off you could be in any room.”
There are signs that even budget commercial property hotels are not immune to Britons’ belt-tightening. Even so, both commercial property Travelodge, and its key rival, Premier Inn, owned by Whitbread, are steaming ahead with new room openings.
Commercial property hotel Travelodge delivers a steady stream of new-build and refurbishment schemes to the industry, with plans to open 41 new commercial property hotels this year, including 11 in London, and hopes to have 1,000 hotels with 100,000 rooms by 2025. Premier Inn plans to open 4,000 new rooms this year.
Senior lenders to the commercial property company are due to meet today to discuss their approach as accounts revealed interest payments on arrears are costing commercial property hotel Travelodge nearly £100m a year.
Guy Parsons, Chief Executive said: “You may have read in the press that Travelodge is currently undergoing a debt restructure; this is a standard process that many big companies undertake.
“There is nothing to worry about; it’s business as usual for us.
He further added: “We opened our sixth hotel in Liverpool just a couple of days ago and we will be celebrating the opening of our 500th hotel next month.”
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