Travelodge announces proposed CVA as part of recovery plan

Travelodge has announced the launch of a proposed company voluntary arrangement (CVA).

The CVA forms part of Travelodge’s recovery plan, which includes steps taken to (i) reopen its hotels once the UK Government restrictions are lifted, (ii) reduce operating and capital costs, (iii) raise additional funds and (iv) temporarily reduce rents paid to landlords.

The company believes its recovery plan offers the best approach to address the short-term challenges facing the business as a result of the COVID-19 outbreak and to secure the future of its more than 10,000 employees.

The CVA proposal is a critical component of the recovery plan. The CVA proposes a schedule of differing rent levels, with some hotels receiving full rents and the majority receiving a temporary reduction in the rent payable covering the period between April 2020 and the end of 2021. All hotels return to full contractual rents in 2022.

Unlike most CVAs, there are no proposed hotel closures or permanent rent reductions. Prior to the outbreak of COVID-19, Travelodge entered 2020 with a record level of cash reserves and delivered five straight years of strong growth, outperforming the midscale and economy sector and its peers.

However, the COVID-19 outbreak has had a significant impact on the broader UK economy and the hospitality sector in particular.

The majority of Travelodge’s estate has remained shut since the UK Government ordered the closure of hotels on 24 March 2020. Leading hotel industry analysts project the likely halving of hotel revenues for the full year, which would be the equivalent of approximately £350m in lost revenues for the business in 2020.

The impact of COVID-19 is also expected to continue into 2021. This unprecedented reduction in revenues continues to significantly affect the short-term performance of the business, which normally generates approximately 70% of its annual profitability in the period from April to September.

In that context, Travelodge has concluded that given the current challenges facing the business and wider hospitality industry, the best way to preserve the Company’s liquidity position is to temporarily reduce its rents payable as rent payments are the company’s largest cost at around £215m per annum.

In recent weeks, Travelodge has engaged extensively with all of its landlords regarding options for a proposed period of temporary rent reduction. As this is a complex process involving around 300 individual landlords, each with differing interests, the Company has decided to move to a formal CVA process to achieve the temporary rent reductions required.

The CVA proposal launched today takes into account feedback received during recent discussions with the Company’s landlords.

The CVA proposal includes:
· No planned hotel closures and no permanent rent reductions
· In the period from the successful conclusion of the CVA until 31 December 2021:
· Landlords will be paid £230m in rent, being approximately 62% of the contracted sum due
· There will be a temporary reduction to landlord rents of up to £144m. This is equivalent to 2-3% of the total rent due under the remaining lease term
· The proposed temporary rent reductions will cease at the end of 2021 and landlords will return to 100% of contractual rent levels from the start of 2022

Customer bookings will remain unchanged subject to hotel openings. Employee payments are also unaffected. The Company has already entered into agreements for revised payments with certain of its suppliers. The CVA proposal is therefore not intended to impact any suppliers, who will continue to be paid according to their agreed terms during this time.