It will save them a fortune

Travelodge, the UK’s second largest chain hotel operator is pursuing this precise strategy. 

The company served notice that it intends to enter a CVA with a creditors meeting on June 19th. 

This would be their second CVA in eight years but unlike the previous one in 2012 when 49 unviable hotels were closed, this time no jobs or hotels are under threat. 

The plan is to reform the business on a more economically advantageous footing after they were forced to close virtually all of their locations earlier this year in line with government advice, losing approx. £530 million in sales.

The ownership group, composed of investment firms such as Goldman Sachs, Avenue Capital and Goldentree, plans to inject £40 million of new equity into the business and raise a further £100 million as part of their turnaround strategy. 

The other critical piece of the plan is to obtain a rent reduction from landlords. 

They are primarily looking to reduce these outgoings by 40% over the next 18 months and do it in a more orderly and collegiate manner than in the previous quarter when they simply didn’t pay.

This would require the landlords to forego £144 million in due rents until the end of 2021 but one inducement would allow landlords to break leases after six months. 

The Travelodge Owners Action Group represent owners of about 80% of the brands hotels and view the move as “highly aggressive”. 

The group has put forward its own counter proposals including offering four and a half months free rent until the end of June followed by a 20% reduction for July to December 2020.

A spokesperson for the group said: “We are being asked to forfeit a huge amount of income. These are not commercial industrial landlords, these are savers, pensioners, local councils and charities who heavily rely on their income to fund payroll and operations. Some local authorities use this income to fund social care.” 

Rivals Premier Inn are planning to offset their losses through a rights issue to help them survive until they can open most of their sites by September. 

Other advantages of a CVA

Chris Horner, Insolvency Director with BusinessRescueExpert said: “Some people might question why a solvent company with over 500 locations would consider a CVA but it is very much a strategic move.

“A CVA is not simply an insolvency tool, it’s an option that a business can use to buy itself both time and additional protection while it implements a transformation. 

New laws are going through parliament right now to introduce a moratorium on creditor actions against companies if they look to implement a rescue and restructuring plan.

“Coupled with other measures including a temporary ban on the issuing of statutory demands and winding up petitions (which is due to lapse at the end of the month) – arguably there’s never been a better time for a concerned company to gain the protection provided by a CVA while they plan their next steps.” 

The hospitality industry has been amongst the hardest hit during the enforced lockdown. 

Thousands of jobs depend on them being able to reopen and reboot services to as many customers as possible hoping that people will still be able and want to travel and take time away from home.

It’s further complicated by being a big part of a supply chain themselves with suppliers and creditors needing payment regardless of how good business is. 

Travelodge and several smaller businesses all over the UK have realised that a CVA is not a step on the way to administration and insolvency – if used properly it can be a pivot back to profitability and survival. 

Get in touch with us today if you want to know more about CVAs or how else we can help your business through the unprecedented conditions many companies are now facing. 

After a free initial virtual consultation, our team of experts will have a clearer picture of the issues your business faces and what steps it can take right now to bolster itself and come out stronger than before.