Back in 2012, the budget hotel chain was found to be in debt of £500 million and subsequently entered into a company voluntary arrangement (CVA) with backing from Goldman Sachs, GoldenTree Asset Management and Avenue Capital. With sufficient funds in place and supervised by KPMG, the CVA was approved by the majority of creditors.
The arrangement allowed 49 hotels to be closed and rent cuts on 109 of its 500 hotels over three years. The backers also agreed to write off millions of debt to keep the business running and to see it pull through, with a hope of turning it around. Hotels were refurbished, teams were restructured to try and put the business back on track.
Over the last three years, the budget hotel chain has gone from strength to strength, with sales continuing to improve (in 2014, revenue increased by 14.9%). According to reports, profits have risen by more than 63.5% with accounts to December 2014 showing underlying profits at £66.2 million.
It has been reported that Deutsche Bank have been appointed to look at the sale of Travelodge for an estimated £1 billion with potentially looking at a stock market flotation. It was said by Travelodge CEO, Peter Gowers, in a recent Radio 4 interview that the current owners are not “natural long-term holders of the business” and that the investment into the brand was a great success
Consumers’ habits have shifted towards cheaper and convenient discounters and budget supermarkets. Stores like Poundland and Aldi are opening up all over the UK to meet demand and it’s no surprise to see why they are so successful. Gowers pointed out that Travelodge is in the best position it can be right now, as it is refocusing on providing a friendly and efficient hotel room service for people on a budget. Of course it also helps to write off debt and then have a £100m injection of cash to update the somewhat tired rooms.
I wonder if there is a profit ratchet in the CVA and will the creditors get more money back?