The ownership of Travelodge, the debt-laden UK budget hotel group, is moving out of the hands of its Dubai backers and into the grasp of two US hedge funds that have been long-term buyers of its debt.
GoldenTree Asset Management and Avenue Capital are preparing to underwrite a £60m loan facility for the group to replace one that is due to mature. They are then expected to take control of Travelodge with a debt-for-equity swap.
They are seeking partners in the new facility, including Royal Bank of Scotland, Investec and Barclays, in a series of talks expected to last for the next two months.
GoldenTree indicated that it did not intend to shake up the group’s management if it took control. It said: “GoldenTree has been a very supportive lender to Travelodge for many years and continues to work closely with the company and management.”
Travelodge is owned by Dubai International Capital, an investment arm of the emirate. DIC bought the budget hotel chain in 2006 from the private equity group Permira for £675m in a highly leveraged deal.
Two years ago, DIC injected £20m of cash in the business in return for a relaxation of covenants by lenders. It now faces losses of at least £400m. Travelodge has debts of £530m and an annual interest bill of £100m.
Its debt problems have been mounting despite solid trading in the group, which has more than 490 hotels, predominantly in the UK but also in Spain and Ireland. Revenues were up 16 per cent last year to £370m, and profits rose 20 per cent to about £55m.
Travelodge said that there had been no impact on trading since its debt problems came to light this month. The group sought and received £10m of emergency cash from creditors – which was underwritten by, among others, GoldenTree and Avenue Capital – to cover another loan that was due to mature.
The £10m loan was given status above other loans, ensuring that it would be first to be paid back.
Under DIC, the group has been expanding its portfolio in a battle with Whitbread’s Premier Inn for the UK budget hotel market. Travelodge announced in January that it would open 41 hotels in the UK in 2012 and create 1,000 new jobs. Its long-term target is to create 1,100 hotels, comprising 100,000 rooms, by the middle of the next decade.
DIC declined to comment.
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