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Debt ridden Travelodge looks to controversial CVA deal 17 August 2012

Creditors of the debt ridden hotel chain Travelodge have expressed concerns over the way a rescue, which is still to be agreed, has come together.

British Property Federation (BPF) has called for a review of the Company Voluntary Agreement (CVA) system that pits landlord against landlord as KPMG today (17 August) released details of a proposed deal which would see rents reduced on 158 of Travelodge’s 500+ hotels.

The deal should see 49 hotels, out of a total of 505, transfer to other operators, with the landlords of these 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 KMPG, who are handling the process, 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 chain, which has £1bn of combined secured and unsecured debt, last year saw profits rise 20% to £55m and revenues up 16% to £370m.
This strong performance in the economic downturn, however, hasn’t been enough as the business has struggled under its mountain of debt and today’s CVA will see some creditors take a “haircut” on their debt – so long as 75% of the unsecured creditors vote through the proposal at a creditor meeting.

Liz Peace, chief executive of the BPF said: “Once again landlords are being asked to play a significant part in rescuing a business, and a minority at that, who are being asked to take a big hit to keep a far bigger business afloat.

“At least in this case, unlike many others, the pain is being shared amongst the other creditors, which we welcome, and dependent on the CVA being accepted the business will get new investment, which should put it on a far sounder future footing.

“We are becoming increasingly concerned, however, with a system that creates such a range of winners and losers and allows advisers to dice and slice creditors to reach the required voting thresholds.

“Everyone can only work within the rules that are set, and in this case the insolvency practitioners are simply working to get their job done, but what we are saying is that such rules need reviewing and some greater sense of fairness restored.”

Commenting on the CVA proposal 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.”

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.”



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