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Travelodge to shed 49 hotels and reduce rent on 109 more as it enters CVA

17 August 2012 by
Travelodge to shed 49 hotels and reduce rent on 109 more as it enters CVA

Travelodge has entered a Company Voluntary Arrangement (CVA) with its creditors as it seeks to reduce the level of rent it pays on 109 hotels. It also plans to shed 49 hotels which it no longer considers viable.

The company, which is understood to be trading well but struggling under £635m of bank debts, said the move would leave it on a more stable footing for the future.

The terms of the proposed CVA are as follows:

  • 109 hotels (22% of the estate) will remain part of the business but will be subject to a rent reduction following completion of the CVA

  • 49 hotels (8% of the estate) are no longer considered to be viable. Travelodge said it would work with the landlords to identify new operators for these hotels and did not expect closures or job losses

  • The majority of hotels (347 hotels and 70% of the estate) will be untouched

The budget hotel firm said it had worked closely with its three main investors, GoldenTree Asset Management, Avenue Capital Group and Goldman Sachs, to reach agreement on its financial restructuring.

The key terms of the financial restructuring include:

  • At least £75m of new money will be injected into the company

  • £55m will be invested into a major refurbishment programme across the estate covering over 11,000 rooms and 175 hotels. The refurbishment programme will start in early 2013 and continue through to summer 2014

  • Bank debt of £235m will be written off and £71m repaid, reducing total bank debt from £635m to £329m.

  • The repayment date of the remaining debt will be extended to 2017 and cash pay interest reduced to a rate of 0.25% above LIBOR through to the end of 2014

The CVA is expected to take approximately 17 days to complete and Travelodge said all of its hotels would continue to operate normally, with all suppliers being paid as normal.

Grant Hearn, Travelodge chief executive, 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. This new appropriate level will provide greater security for our staff, suppliers, landlords and developers. This is a successful brand with millions of customers and the company will emerge in excellent shape from this process."

By Neil Gerrard

E-mail your comments to Neil Gerrard here.

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