Travelodge creditors agree to CVA insolvency

Travelodge will formally declare insolvency after creditors’ approved a company voluntary arrangement (CVA) for the budget hotel chain.

The approval ended a prolonged and increasingly bitter battle between Travelodge and landlords of its hotel sites who opposed the company’s proposals to withhold rents through the rest of this year and into 2021.

The landlords accused Travelodge and its owners, investment bank Goldman Sachs and US hedge funds Avenue Capital and GoldenTree Asset Management, of exploiting the Covid-19 crisis to cut costs.

In a brief statement on Friday, Travelodge said: “The successful vote will enable Travelodge to navigate the short-term challenges facing the business as a result of the Covid-19 pandemic.

“The directors of Travelodge would like to thank its creditors for their support during this period and look forward to re-opening and welcoming guests back to its hotels in the near future.”

The government is expected to confirm the hospitality sector can re-open from July 4.

Travelodge operates 590 hotels, primarily in the UK, but also in Ireland and Spain. It has kept just 48 properties open through the lockdown for NHS staff and key workers.

The company withheld its quarterly rent payments at the end of March and in April appointed Deloitte and investment bank Moelis to negotiate rent reductions or deferrals with its landlords in an effort to more than halve an annual rent bill of £230 million.

A majority of Travelodge’s 135 landlords rejected an 80% reduction this year and 50% reduction next and proposed a £53-million reduction instead.

Travelodge’s largest landlord Nick Leslau, owner of Secure Income Reit, described the hotel group’s owners as “distressed debt fund owners sitting in New York” and accused them of “gaming the system”.

The group’s owners countered that Travelodge had taken on an extra £100 million in debt to see it through the crisis and they had been forced to write down the value of the business by £200 million.

Travelodge reduced the concessions on rent it was seeking from £175 million to £146 million in May, but this was also rejected by the landlords.

In early June, the company instead sought a CVA which requires the approval of creditors holding 75% of a company’s debt.

The agreement of creditors, including landlords, to the CVA will see Travelodge temporarily cut rents and move from quarterly to monthly payments on some leases.

But the company had to concede landlords can break lease contracts and its owners agreed not to extract money from the company before it returns to paying full rents in 2021.

Landlord Viv Watts, who represented a large group of Travelodge landlords, approved the proposals but told the Financial Times: “It is clear CVAs are being used by overseas shareholders to extract and repatriate domestic capital from the commercial property sector.”

Goldman Sachs, Avenue Capital and GoldenTree Asset Management took over Travelodge in a debt restructuring to save the group from administration in 2012.

Travelodge completed another refinancing in July last year, extending its credit facilities to 2025.

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