Marcus Evans Group | Worldwide Headquarters | American Offices | Latin America | European Offices | African / Asian Offices

Travelodge set for takeover by two US hedge funds

Avenue Capital and GoldenTree Asset Management pledge to step in with £60m in funding and seize control of the hotelier

Travelodge, known for its £10-a-night rooms, is to be taken over by two US hedge funds that stand ready to inject some much needed cash and save the budget hotel chain from collapsing into administration.

The debt-laden company, which has more than 470 hotels in Britain, Ireland and Spain, and employs more than 6,000 people, needs to raise £60m to survive. It is owned by Dubai International Capital, a private equity house backed by the Gulf state, which stands to lose up to £400m.

Two New York-based hedge funds, Avenue Capital and GoldenTree Asset Management, which have been creditors to Travelodge since 2006 when DIC bought the business, have pledged to step in with £60m, a Travelodge spokesman said, and intend to take control of the hotelier in return. They are talking to Travelodge’s main lenders – Investec, Barclays, Royal Bank of Scotland and Babson – about whether they want to be involved in the rescue.

Creditors were forced to inject £10m of emergency cash in recent weeks. It is in the hedge funds’ interest to keep Travelodge afloat because insolvency would wipe them out as the junior lenders. After pumping in more money, Avenue and GoldenTree plan to seize control of the firm from DIC through a debt-for-equity swap. There are hopes this process could be wrapped up in the next two months.

DIC’s equity stake would be wiped out unless it injects more capital to retain its investment, which is thought unlikely. It bought the firm from Permira in 2006 for £675m, backed by loans of £478m.

GoldenTree said it had been a “very supportive lender to Travelodge for many years and continues to work closely with the company and management”.

Some believe Travelodge is in trouble mainly because the 2006 takeover saddled it with too much debt. The hotel chain now has borrowings of £530m and an annual interest bill of £100m.

Just last month budget fashion chain Peacocks collapsed with £600m of debts.

Travelodge is offering a £10 nightly rate between April and August. It stressed its budget hotels were performing well as the economic downturn was forcing more families to holiday in Britain. Profits for last year climbed 20% to £65m while revenues rose 16% to £370m.

A spokesman said: “The budget hotel sector is growing. People are staying in the UK more than going abroad.” Rooms were basic but cheap, and the spokesman noted: “When you turn the lights off you could be in any room.”

There are signs that even budget hotels are not immune to Britons’ belt-tightening. Nonetheless, both Travelodge and its main rival, Premier Inn, owned by Whitbread, are steaming ahead with new room openings. Travelodge intends to open 41 new hotels this year, including 11 in London, and hopes to have 1,100 hotels with 100,000 rooms by 2025. Premier Inn plans to open 4,000 new rooms this year. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds