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Travelodge set to launch CVA in effort to end rent stand-off

Travelodge is set to launch last-resort bankruptcy proceedings that will legally allow it to slash rents in an attempt to end a fractious dispute between the hotel chain and its landlords.

The company will file documents for a company voluntary arrangement, a restructuring measure increasingly used by ailing retail and leisure operators, on Wednesday. Unlike standard CVAs, Travelodge will not shut any of its 564 sites or permanently cut rents.

Instead it plans to pay landlords £230m in rent for this year and next — roughly half of its annual bill.

The budget hotel operator has been in a tit-for-tat dispute with its landlords since it refused to pay rent for the second quarter at the end of March. Landlords claimed that the hotel chain, which is backed by the New York hedge funds, Golden Tree Asset Management and Avenue Capital and the investment bank Goldman Sachs, was taking advantage of the pandemic to cut bills that it could afford to pay.

The feud has been one of the most aggressive to have broken out between property owners and their tenants after multiple retailers and hospitality businesses stopped paying rent during the coronavirus lockdown.

The landlords previously offered to write off one quarter’s rent and allow Travelodge to reduce its bill by 20 per cent for the rest of the year, adding that if the company did not agree to the terms, they would forfeit the leases as soon as they were legally allowed to and replace Travelodge with a new budget hotel brand.

Viv Watts, who is representing a group of around 150 landlords, has lined up the designers of Travelodge’s own signage to create “Travelodge 2.0”, he said.

Under the CVA proposals, Travelodge’s shareholders have agreed to inject £40m cash into the business and make a £100m available in additional reserves. The company would start paying full rents again at the beginning of 2022.

The plans are subject to the agreement of 75 per cent of the chain’s creditors by value of the debt owed to them, most of whom are its landlords.

Property owners have been prevented from forcing out tenants that do not pay their rent under the government’s coronavirus regulations, which give tenants 90 days’ grace before landlords can evict them.

The law was designed to protect tenants left with no cash flow after they were forced to close under lockdown. Last week Nick Leslau, Travelodge’s largest landlord, wrote to the UK business secretary claiming that the act had “unintended consequences”, however, and that the measures had destroyed value for pension funds and savers to “the benefit of offshore private equity investment funds” which were not “sharing the burden of this crisis”.

Melanie Leech, chief executive of the British Property Federation, said: “We support a rescue culture and CVAs as one of the options available to support businesses in genuine distress. The process, however, must be fair and transparent, and should not be wrongfully used as a way for a tenant to walk away from lease liabilities without tackling the wider challenges it faces.”

The proposals will be subject to a vote on June 19. Travelodge declined to comment.

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