Richard Balfour-Lynn's hotel group, MWB, is hoping to raise £27.5m through a new share issue in a bid to remedy financial damage done by the recession.
MWB Group Holdings (which owns the Malmaison and Hotel du Vin hotel chains and Liberty retail store and operates 73 serviced office centres) intends to raise the funds through the issue of 91.67 million new units priced 30p each. The move comes six months after MWB reported pre-tax losses of £5.1m.
MWB wants the funds"to provide the group with a more stable financial structure by increasing the level of equity in the company". It also admitted that, without the issue, it was unlikely the group would manage to pay back its loans and debts.
It cited the economic downturn as the main catalyst for the move, saying that "the recession has had a negative impact on MWB and its three operating businesses."
According to the statement, the impact of the credit crunch on trading and property values "has meant that the funds available to be drawn by the group under its financing facilities, the group's available resources and the level of headroom under certain of the financial covenants within the group's debt sources, have all fallen during the last 18 months."
MWB warned that, without the placing, "the directors believe that there is a material risk that the group will breach one of the gearing covenants in the Loan Stock Trust Deed at the testing date of 30 June 2010. Furthermore, there is a risk, albeit more remote, that, if the placing does not proceed, the group may also have a funding shortfall by May 2010."
The group will use £7.5m of total net proceeds to purchase for cancellation £7.5m of the loan stock currently held by Audley Investors, which will subscribe for 25 million new units in the placing.
The balance of £17.4m of the net proceeds will be used to reduce amounts drawn on the group's banking facilities and to repay the £4m intra-group loan from Business Exchange Centres.
Balfour-Lynn commented: "The raising of equity will provide the Group with a more appropriate capital structure and provide financial flexibility in the current environment. In the longer term, it will enable the Group to capitalise on the long-term growth drivers in its markets."
Last year, MWB attempted to sell its boutique hotel chains Malmaison and Hotel du Vin for more than £650m, with no success.
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