Sample Transactions
“First aid” in the hotel industry
Project name |
Hotel / 5 stars |
Client |
International banking consortium |
Duration |
6 months |
Task |
Profitability analysis Restructuring Transaction preparation Moderation |
Volume |
EUR 60 million |
Starting situation: Hotel building owned by a non-EU company, hereditary leasehold. Lease agreement with a fixed value with renowned hotel chain A. A has Management contract with hotel chain B, who has operated the hotel under its brand name for around 40 years.
After a failure to reach agreement regarding the extension of the contract, the owner terminates the lease agreement with operator A in June effective 31 December of the same year, without a new rental / lease agreement with Management company B or alternative hotel company. As of November, still no solution from 1 January of the following year, risk of closure of hotel operation with 150 employees, loss of income source, risk of insolvency on the part of the owner, reduction of financial assets to minimum level, lessor has right to terminate contract in the event of insolvency. External financing by two foreign banks in excess of the market value of the property.
When Brüggemann GmbH took over the mandate, initial measures to remove the brand identity and the logo from the hotel roof had been taken.
Mandate: Appointed two months before the end of the year by foreign subsidiary of a German bank to rescue the hotel operation as the only source of income to cover its debt service claim.
Task: To establish and analyse the causes, develop strategic alternatives to the closure of operations, business continuation concept with alternatives reviewed, standstill agreement reached with parties involved, parties involved convinced of business continuation concept with their Advisory bodies, 150 hotel employees taken on by the owner as contractual partner at the last minute on 31 December, preliminary contract entered into with Management company B concerning continuation of the Management services for 20 years. Valuation adjustment of the loan volume for senior and junior lenders minimised.
Analysis: Risk of high value adjustment of the loans, total loss of equity. The Scandinavian owner lived in a non-EU country. His owner company was a complex Swiss holding company with critical economic existence.
Solution: Intensive moderation of negotiations between the parties involved, the hotel chains’ heads of development in Germany and abroad, successfully persuaded former Management company B to enter into a Management contract directly with the owner and to agree on 20 years.
The owner had to expand its function as a risk-free lessor to include the function of the party directly involved in the financial risk as the hotel operator. In this role, he took on the business risk of the hotel, but was able to minimise it to a large extent, since the Management function was able to be handed over to internationally renowned hotel chain B. The closure of the hotel was able to be prevented just a few hours before the deadline of midnight on 31 December, the operational transfer was successful.
In addition, it was necessary that the capital providers assumed a guarantee, in order to put the hotel operator in a position to make the investments that had been put off for several years. By reorganising the rents and interest charges in favour of the investment, the threatened insolvency was able to be avoided. This could only be achieved in the short time available by making use of all time reserves. The project analysis, steering and responsibility were taken on by our Senior Partner with experience in the hotel industry.