Reservations about hotel sector despite GDP growth

A BIG SIGH of relief all round this morning as the UK's GDP growth figures for Q1 2011 show us back in positive territory - albeit a tentative 0.5%. So, we've managed to avert a double-dip recession, but will still find it difficult for some time to come to raise ourselves above a bumpy ride along the bottom.

In these situations when good economic news is followed by bad, and then round and round it goes, it's no wonder that the general populace is wary about the future, and therefore worried about spending.

That is why the retail and leisure sectors find circumstances difficult to trade in, particularly when incoming revenue doesn't generate enough cash to pay debts when they become due.

Last week, I read that Von Essen Hotels Ltd, owners of some very swanky castle-type hotels went into administration after defaulting on debt repayments to their main bankers.

The Von Essen holding company has some very attractive trophy assets in its portfolio, so even though the debt mountain is as high as £250m, banks should find a way of getting their money out.

Other unsecured trade creditors may not be so lucky, but then they would have weighed up the credit risk when supplying a highly-leveraged hotel group like this during tough economic conditions, right?