It has been reported that the owners of budget hotel group, Travelodge, who are Goldman Sachs, Avenue Capital, and GoldenTree Asset Management have appointed KPMG to advise on how the hotel chain can be restructured to manage its £500m of debt. The debt payments amount to a £100m a year. The New York based hedge funds are in the process of taking control of the the hotel chain from Dubai International Capital who bought the business in 2006 with £475m of debt.
A company voluntary arrangement (CVA) – is one of the options being considered whereby the creditors agree to write off some of the debt and repay the remainder over a 3-5 year period. The CVA mechanism is especially cost effective at allowing companies with large real estate portfolios to reduce costs by vacating premises. Another option is a debt for equity deal whereby fresh finance is injected into the company.
Reducing the number of hotels it operates is also an option if the group can convince landlords to find new operators to take on its leases.
Travelodge has performed quite well through the economic downturn –with a profits rise 20pc to £55m on revenues up 16pc to £370m – the interest on its debts have simply become unsustainable.
A spokesman for Travelodge said: "As part of the ongoing restructuring process, a number of options are being considered. However, no decisions have been taken at this stage and we will update you in due course."
If your company is dragged down by debt then a CVA could be the answer as for smaller businesses a sudden injection of cash is less likely...