Travelodge Hotels has inked a company voluntary arrangement (CVA) with its creditors to cut rents for the rest of 2020 and the whole of 2021 following weeks of negotiations.
Under the terms, Travelodge will formally declare insolvency, slashing rent payments across its 580 hotels and moving from quarterly to monthly payments on some leases. But, under new concessions, landlords will also be able to break lease contracts, and Travelodge shareholders have agreed not to extract money from the business until it returns to full rental payments in 2022.
The group reached the agreement with its creditors after talks ground to a halt in late May and the Travelodge Owners Action Group, the majority coalition of Travelodge landlords, threatened to evict the hospitality chain and set up its own rival operator.
The original CVA proposed by Travelodge on 3 June, modifed on 16 June and clarified on 17 and 18 June was passed on 18 June by the required majority of creditors and approved by its shareholder. Travelodge is bankrolled by two New York hedge funds, Golden Tree Asset Management and Avenue Capital, alongside investment bank, Goldman Sachs.
The CVA, which required the approval of 75% of landlords, was crucially backed by Secure Income REIT, Travelodge's largest single landlord, which owns 123 of the group's hotels.
Martin Moore, chairman of Secure Income REIT, commented: 'The break clause optionality provided to us by the CVA agreement, in conjunction with Secure Income REIT’s strong balance sheet and considerable liquidity, creates a solid position from which we can actively explore options for our hotels portfolio, whilst at the same time providing Travelodge with the breathing space it requires to re-establish its business.'
While the preliminary agreement has passed, there is now a 28 day period from the date that the CVA is filed during which the outcome may be challenged through the courts by any creditor of Travelodge who was entitled to vote on the procedings.
Should the CVA stand, Secure Income said it would result in a £14.4 mln (€16 mln) or 12.9% cut of its total annual rent for the remainder of 2020 and a reduction of 7.6% or £8.6 mln of expected rents in 2021.
Some 119 of Secure Income's 123 Travelodge leases now include a landlord-only option to break the lease for no consideration payable. For the majority of those leases, 114 of the 119, the break option may be exercised at any time before 19 November 2020 and for the remaining five leases the break option period runs to 31 December 2021.
The company said it was in preliminary discussions with alternative hotel operators with a view to 'establishing the best options for maximising shareholder value'.
