Landlords want fairer insolvency rules as Travelodge restructures

by Kevin Reed

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17 Aug 2012

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LANDLORDS' REPRESENTATIVES have bemoaned insolvency rules that have seen their members lose a slice of debt owed to them as part of a deal to keep hotel chain Travelodge alive.

Restructuring and refinancing of Travelodge will be supervised by KPMG. As part of agreeing a company voluntary arrangement, a fifth of landlords (109 properties of the 456-strong estate) will be subject to rent reductions in the deal.

Liz Peace, chief executive of the British Property Federation, 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."

While welcoming the fact that other creditors were also taking cuts to keep the business afloat, including a £235m bank debt write-off, Peace raised issues with the potential for insolvency advisors to manoeuvre creditors to gain a sufficient number to gain clearance on proposals. A CVA is an agreement between an insolvent business and its creditors to repay a percentage of its debt over a period of time. The agreement, which takes a business out of insolvency, requires 75% creditor approval by value.

"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," she said.

"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."

A further 49 hotels will shut as part of the restructuring.

Other terms of the deal include: at least £75m of new money to be injected into the company; and £55m will be invested into a major refurbishment programme across the estate covering more than 11,000 rooms and 175 hotels.

The refurbishment programme will commence in early 2013 and continue through to summer 2014. Bank debt of £235m will be written off and £71m repaid, reducing total bank debt from £635m to £329m; the repayment date of the remaining debt will be extended to 2017 and cash pay interest will be reduced significantly to a rate of 0.25% above LIBOR through to the end of 2014.

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