Cotswold Hotel Portfolio – Debt Restructuring

cotswolds landscape

Hotel debt restructuring

Our client is a successful and proven hospitality operator with an outstanding career in the Corporate Hotel sector prior to acquiring a portfolio of 3 mid-market distinctive hotels providing quality accommodation, food and beverage service in the Cotswolds.

The acquisition of the hotel portfolio was made with the assistance of a commercial mortgage from a High St. lender based on the open market value of the portfolio and the trade goodwill.

The purchase price was below market value due to the need to extensively refurbish the hotels and the “product” to differentiate from nearby rivals and to maintain revenue attainment against forecast and the lenders’ debt service and loan to value covenants.

Unforeseen costs for hotel refurbishment

During the refurbishment programme unforeseen costs were incurred and when our client approached his lender, they refused to provide addition loan facilities by way of a working overdraft, to allow the refurbishment works to be completed.

As a result, our client turned to a subprime lender to provide the assistance he required. Unfortunately, the extra loan servicing debt burden came to the attention of our clients’ lender which resulted in a breach of debt service and loan to value covenants.

As a consequence of the covenant breach, our client was transferred to the lenders’ business support team who undertook a review of our client’s business and came to the conclusion that due to the covenant breach, our client had the option of either a non-consensual disposal of one or all of the hotels or refinancing their (the lenders’) debt.

Our client was recommended to Stewart Hindley by another operator in the nearby area whom we had previously assisted and supported in similar circumstances.

Refinancing the hotel loan

On receipt of our client’s instructions, we engaged with the lender and their professional advisors to secure the business case for the refinancing, based on an element of debt forgiveness, to meet with the new lenders’ debt servicing and loan to value metrics.

Our client’s hotels are now trading well and profitably and meet all the conditions and covenants of the new loan facilities without duress.

The byword in all of this is that you can’t guarantee that your lender will extend additional facilities when you need them, regardless of the circumstances, as a request for addition loan facilities may trigger a review of your business which may result in a covenant breach with unintended consequences.

If in doubt about your business’s financial arrangements or your relationship with your lender, speak to a debt restructuring specialist, such as Stewart Hindley and Partners, for impartial and no obligation advice.

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