What can we learn from the Travelodge story?

In 2011 the budget hotel chain was reporting massive losses and Travelodge chief executive Grant Hearn had his work cut out to rescue the situation.


However, drastic action including large-scale restructuring and entering into a Company Voluntary Arrangement in 2012 suggested the first signs of a turnaround.


Losses more than halved from £148.1m in 2011 but there was still a mountain to climb, although Mr. Hearn was able to successfully guide the company through its troubles.


When Dubai International Capital acquired Travelodge in 2006, the deal was debt-ridden and placing permanent stress on the company’s finances.


At the start of 2012, the company was struggling with repayments and interest payments on £635m of bank debt and a £482m bond, forcing Travelodge to take out an emergency loan.


Despite the fairly substantial issues facing the company, general turnover remained strong – £391.4m in 2012 was up from £369m the year before.


The structure of a Company Voluntary Arrangement  (“CVA”)


As part of the CVA, the company was restructured – albeit at significant cost – but a considerable portion of the bank debt, around £235m, was written off.


The £482m bond was also written off as part of the business restructuring, releasing a significant burden on the company.


Furthermore, the CVA, which was set up to cut costs and restructure the business quickly and efficiently, also enabled Travelodge to reduce its rent on some locations.


Some 109 of its 520 hotels were able to reduce their rent by 25%, while other sites were transferred to different operators.


The company remained in debt following the restructuring, but the figure of £430m is considerably lower than the estimated £1 billion figure prior to the reformation.


Additional funding has been poured in to inject life back into old and tired rooms, with the company redecorating its 10,000th room in the summer of 2013.


Plenty more have also been refurbished since, as the company looks to continue its recovery.


That will have to be done without Mr. Hearn though, who recently announced he is stepping down following a decade with the hotel operator.


However, he has seen the company through a CVA and a complete restructuring overall, demonstrating just how the methods can be used to save a struggling company.


By Phil Smith


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