Le Meridien, the up-market hotel group acquired by a group of private equity firms led by Nomura and Royal Bank Private Equity, is to hold crisis talks with its lenders after the group breached its bank covenants.
According to estimates, the value of the group has slumped to £700m and it is now worth less than the value of its debt which is estimated to be £1bn. The group has been hard hit by the downturn in trade following September 11, the Iraqi war and the recent SARS scares.
The group, which was acquired for £1.9bn in 2001 by a consortium comprising Nomura's Principal Finance unit, then headed by Guy Hands, Royal Bank Private Equity, Alchemy Partners and Abbey National Treasury Services, is to hold talks with its bankers on May 19 after the private equity participants in the deal wrote off the value of their investments.
As a result of its breaching of covenants, the group is effectively in the control of a group of around 20 banks, which provided a package of debt worth around £1bn. At the time of the deal in May 2001, a leveraged loan package worth £2.4bn was arranged by CIBC and Merrill Lynch. The senior debt is secured against Meridien property. Lehman Brothers also provided £160m of mezzanine debt which was meant to repaid this year.
The bankers involved in the deal have asked Stephen Alexander, Le Meridien’s chief executive, to present a rescue plan, according to The Times newspaper. Depending on the outcome, they could opt to put Le Meridien into administration. The Sunday Telegraph reports that RBPE has written off £100m on the business, while Nomura has written off £213m.
Guy Hands is planning to ask Nomura, Royal Bank of Scotland and other investors for as much as £400m to keep the Le Meridien Hotels chain out of bankruptcy. However, speaking to Bloomberg, Jon Moulton, head of Alchemy Partners, said the current financial situation at Le Meridien made further backing unlikely. “No one in their right mind will put more money into this without sorting out the existing financing structure first.” Alchemy wrote off its £30m stake in the business in December.