Debt pile leads to restructure at luxury hotel chain
An inability to service loan and interest payments relating to debts in excess of £320m led to the restructure of a group behind 21 luxury regional hotels, new documents have revealed.
Despite trading profitably, the company, which included The Redworth Hall Hotel in County Durham within its portfolio, was also not making enough cash to invest fully in its hotels.
The Hotel Collection, formed following a rebrand of Puma Hotels in June, has now been restructured through a £256m pre-pack administration. It operates 21 four-star hotels in England, Scotland and Wales with more than 2,800 ensuite bedrooms and about 220 meeting rooms.
In May, US-headquartered distressed asset specialist Lone Star Funds acquired its debt from the Irish Bank Resolution Corporation which had entered special liquidation in 2013 and was selling off its loans.
However, the group was insolvent on a balance sheet basis. In the face of declining UK property prices, the hotels were valued at £248m by December 2013, while debts ran to £337m plus £44m arising from bonds issued by UK Hotels (Finance) plc.
The leisure business was also not generating enough money to service the debt or make the estimated £30m of investment needed to protect its profitable trading performance.
When the loan facilities expired on 31 May 2014, UK Group of Hotels (formerly Puma Hotels) defaulted on interest payments and entered into a short term standstill arrangement.
This arrangement terminated on 4 August 2014 and on the same day a Lone Star affiliated body served a demand on the parent company of the group which subsequently appointed Paul Williams, Paul Clark and David Whitehouse of Duff & Phelps as joint administrators with the aim of reviewing solvent and insolvent restructuring options.
A solvent restructuring was considered unachievable and due to the threat of court action by HM Revenue & Customs, notices of intention to appoint administrators to all the trading entities within the group were filed, with administrators appointed on 11 September.
A pre-pack deal was immediately agreed with companies also backed by Lone Star.
In a report by administrators, the pre-pack deal was said to be the best option because it was at market value and maximised the return to the largest creditor.
The sale also avoided a potential £30m reduction in value from an extended administration, preserved debtor collections and mitigated the risk of claims from customers for the return of deposits, administrators added.