UK: Boodle Hatfield, a private wealth law firm, has revealed that the total debt for the UK’s top 30 hotel groups now stands at £6 billion versus £4.2 billion in 2009.
Debts of the top hotel companies are now an average of 106 per cent of shareholders assets, compared to 91 per cent of shareholders assets in 2009.
Over the last few years, UK hotel groups have added to its debt levels through major investment programmes, especially in London, to attract higher margin customers and maintain occupancy rates.
Many have also used the sale and leaseback model. This process involves selling properties from within portfolios, which are then leased back from the purchaser. This capital has enabled hotel chains to continue growth whilst reducing the asset base against which hotel companies can borrow.
The firm has said its clients within the hotel sector are calling on the government to outline a clear time frame of when and on what terms hotels can reopen.
Rajeev Joshi, partner at Boodle Hatfield, said: “Providing more visibility and certainty over when the sector is going to start opening up again is important for lenders’ confidence. Removing some of the guess work involved in the sector’s financial modelling will be key.”
“We would also like to see the Government and the Bank of England more actively marketing the various funding schemes they have made available to the sector. There is a real risk that some borrowers won’t apply for available support because they assume they won’t get it.”
The UK government has announced several funding schemes to help hotels through the coronavirus crisis. Smaller, independent hotels have struggled to access these loans, whereas larger hotel groups such as InterContinental Hotel Group have been able to borrow £600 million from the Bank of England’s Covid Corporate Financing Facility.
Boodle Hatfield said that further measures will be necessary to support the hotel sector. For example, allowing hotels to defer lease payments and management contract fees, with the debt service obligation of landlords and management companies deferred by the equivalent period, will give hotels additional cash when it’s in short supply.
Adam Chamberlain, real estate finance partner at Boodle Hatfield, explained: “Government support through the CBIL scheme should provide much-needed capital but the money has so far been slow to get out the door to smaller owners and operators. The scheme is well intended but lenders still need to apply significant time to diligence exercises in relation to loans for which only 80 per cent is guaranteed by the Government. Unfortunately, the 100 per cent guaranteed Bounce Back Loans are not going to be enough for a hotel company of any real size. Loans of any form will add further to the debt pile of an already heavily leveraged industry and sector participants will have to consider if now is the right time to be taking on more debt.”
“The hotel sector would benefit immensely from the proposed nine-month “national time out”, which would help bolster hotels’ liquidity levels and safeguard jobs in the sector,” he added.
Boodle Hatfield LLP is a 39-partner law firm with main departments in property, private client and tax, corporate, facility and litigation. It acts for individuals, families, property owners and businesses in the UK and internationally.
