The group said: “Without added clarification, landlords have the strength in numbers to oppose”.
The collective warned that it could reject the plan if more information about the £40m by Travelodge’s investors is not forthcoming.
There is a 17 June deadline for the initial vote, with the creditors’ meeting is scheduled for 19 June. It was reported that the group had proposed increasing the share of profits that would be handed to landlords above a £200m threshold; pledging that shareholders would not be able to take money out of the company until landlords had been fully repaid; making it easier for property-owners to exercise break clauses in their contracts with Travelodge.
A Secure Income Reit analysis of the CVA reported that if approved, it would result in an estimated short term aggregate reduction in rent of £23.4m, “equivalent to a total of 10 months' rent spread for two years across SIR's entire 123 hotel Travelodge portfolio”.
The proposed rent reductions would represent 67.7% of rents otherwise receivable from Travelodge from 1 April to 31 December 2020 and 26.1% throughout 2021. Thereafter rents will be restored to the levels set out in the existing leases. Unlike most CVAs, there are no proposed hotel closures or permanent rent reductions that persist beyond the period ending 31 December 2021.
It was also proposed that the leases relating to £23.5m of the current passing rent on the hotels will be extended by three years and £1.5m of the current passing rent by five years, which would if implemented increase SIR's Weighted Average Unexpired Lease Term on the hotels by 2.75 years.
Landlord break clauses would be inserted into leases representing 88.4% of the rent, 94% of which would be operable for five months after the date of the CVA and 6% until the end of 2021. There would be no tenant break clauses. In addition, there was a profit sharing arrangement if certain earnings targets are achieved by Travelodge whereby some of the foregone rent might be recovered.
For a CVA to be approved, 75% of creditors must support it. Travelodge has over 300 landlords, including Secure Income Reit, which said that it would look at the proposals “in order to best protect the company's position” in determining whether or not to support them.
Secure Income Reit has already rejected a proposal from Travelodge suggesting a rental cut of 80%. SIR said: “Until the pandemic struck, Travelodge had substantial earnings and significant operating cash flows, and we consider that this business has considerable equity value as well as long-term viability. It also has very substantial shareholders in Goldman Sachs, Goldentree and Avenue Capital.”
The group claimed that Travelodge was trying to force through a restructuring of the group, after the brand withheld quarterly rents due at the end of March and proposed rent reductions until 2021.
Travelodge wrote to landlords on 13 May appealing for their support, saying it expected to miss out on £350m in lost revenue due to coronavirus.
In the letter, Travelodge said: “We have been generating substantial losses since the lockdown began and there is no date yet for it to be lifted. It appears increasingly likely that any lifting of restrictions will be phased and come with new operating conditions. We would expect that this may result in a lasting impact over at least the next two years and perhaps beyond.”
Travelodge entered into a CVA in 2012, with debts of £500m, an arrangement which saw 49 hotels closed and rent cuts on 109 properties. The deal was backed by current owners Goldman Sachs, GoldenTree Asset Management and Avenue Capital.