Last-Minute Headroom: Travelodge set to make last ditch attempt to save business

July 3, 2020

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2 min read

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What's going on here?

Travelodge’s proposed CVA sees the light of day as shareholders and creditors approve a restructuring plan to tackle the COVID-19 pandemic which saw most of its 550 hotels lose business.

What does this mean?

A Company Voluntary Agreement or CVA is considered to be a last resort before a company files for insolvency. It generally entails an agreement between a company and its creditors to make only partial repayment of the debt owed, deferring sums owed for a short period of time. A minimum of 75% of the creditors need to approve a CVA proposal for it to become binding.

The restructuring plan of Travelodge includes a CVA wherein £240m (£100m in extra debt, £100m from reserves and £40m in new equity) shall be freshly infused into the business. The company is aiming to save around 40% of annual rent (approximately £144m) over the next year and a half without compromising on the demands put forth by the landlords, who represent the group most sceptical about the CVA.

What's the big picture effect?

This conflict between Travelodge and their landlords is turning into a saga, pitting Wall Street hedge funds against local pensioners and retirees. Reports suggested that Travelodge’s CVA had to go through multiple rounds of deliberation before both parties could finally pen down the agreement.

Many of the hotels rented by Travelodge run on the financial backing of pension funds. Hotel owners claimed that the Goldman Sachs-backed company, though capable of paying the previous quarters’ rent, avoided it under the garb of the pandemic. The deal, though, now approved seems to have larger implications on the domestic insurance and pension market of the UK. 

Landlords claimed that the company was shifting excessive burden upon property owners. Travelodge is set to lose around £350m in sales due to the lockdown and is supposedly on the verge of bankruptcy. The CVA has however promised its landlords a payment of around £230m over the next 18 months. Some property owners seem to be unhappy with this bargain but unfortunately can’t evict commercial tenants for their inability to pay the rent until at least June end, under the guidelines announced by the UK government.

Economic recovery is predicted for the last quarter of 2021. To keep their boat afloat, Travelodge has successfully convinced its creditors, most of whom are hotel owners, to push this restructuring plan through, touching the 75% mark and navigating past its short-term challenges successfully.

Report written by Pratyush Chaturvedi

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