UK budget hotel chain Travelodge agreed a £635m ($999.6m) debt restructuring that will give lenders control of the business but confirms a significant loss for its Dubai owners who bought the company in 2006.
The announcement comes after lending sources told Reuters in February that the group's lenders would assume control of Travelodge after it breached loan agreements in 2011.
Under the restructuring, debt will be reduced to £329m from £635m and new cash totalling £75m will be injected into the business for major refurbishment work, the company said on Friday.
Travelodge owner Dubai International Capital (DIC) - which had already written down its investment in Travelodge - will hand the keys to mezzanine lenders including GoldenTree Asset Management and Avenue Capital Group.
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Travelodge fell victim to the economic downturn, coupled with a large debt burden and expensive lease arrangements. Its adviser KPMG said all existing hotels would remain open though 49 would be sold to other operators.
DIC bought Travelodge, whose promotions include rooms for £10 a night, from private equity firm Permira in 2006 for £675m, backed by loans of £478m.
Under the restructuring, the repayment date for the remaining £329m of debt is extended to 2017 and interest payments are reduced to 0.25 percent over Libor until 2014, to alleviate the burden while the hotelier's properties undergo refurbishment.
Some £55m will be invested to renovate more than 11,000 rooms and 175 hotels, starting in early 2013 through to summer 2014, the company said.
The group will undergo a so-called Company Voluntary Arrangement (CVA) - a type of reorganisation allowing firms to renegotiate rents and leases - at the High Court in London to complete the restructuring.
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