• More funds raised to counter covid-19

Scandic Hotels has announced a SEK1.75bn rights issue, to support its business over the coming months of sustained trade. Key shareholders Stena Sessan, AMF and Formica Capital, who between them hold 41.6% of Scandic shares, agreed in advance to back the issue, and vote in favour of the move. AMF additionally said it would take up to SEK500m in further stock, so long as it does not breach the legally significant 29.9% stakeholding limit.
Alongside the fundraiser from shareholders, Scandic rustled up a further SEK1.15bn by way of a new credit facility from banks DNB, Handelsbanken and Nordea. A further short term SEK250m bridging loan will cover any cashflow issues ahead of completion of the rights issue.
The group said like-for-like sales fell 47% in March, and second quarter occupancy was likely to work out around 7-11%, while more than half of the hotels had closed temporarily.
“We have had to take rapid and comprehensive actions to reduce our cost level while doing everything we could to limit the impact on our colleagues and business partners,” said Scandic CEO Jens Mathiesen. “These decisions have not been taken lightly and I look forward to re‐opening our hotels and to welcome team-members back as soon as possible.”
He added that the steps taken “will put us in a strong position to manage through this period and enable us to return to profitable growth as quickly as possible.” Modelling suggests the cashflow squeeze will be toughest during the first half of 2021, when costs will rise ahead of improving revenue levels.
The rights issue is subject to EGM approval on 28 May, with the intention subscriptions will be completed by 24 June.
Company executives expect to return to the market leaner and more efficient, reckoning they will be able to beat an 11% ebitda target, even at revpar levels lower than those of 2019.
In Spain, NH Hotels has agreed terms on a EUR225m syndicated loan, which matures in 2023 and will tide the group over the coronavirus crisis. BBVA and Santander led the fundraise, joined by Bankia, Bankinter and ICO, the Official Credit Institute of Spain. The deal was arranged under a framework set up by the Spanish government specifically to help businesses in the country weather the downturn. The deal has the potential for adding a further EUR25m to the advance, if required, in due course. Meanwhile, NH has cancelled its planned dividend and culled expenditure as it battles to reduce outflows.
Both Marriott and Hilton have tapped their credit card promotional partners for cash, while extending the terms of existing agreements. Marriott has drawn USD570m from JP Morgan Chase, and USD350m from American Express. In the case of JP Morgan Chase, the sums are prepayments and early payments under existing agreements around a co-branded credit card. The Amex payment covers the transfer of Bonvoy loyalty points.
Marriott has cancelled a hastily arranged USD1.5bn credit facility, announced on 14 April, with the benefit of the credit card funds and income from a senior notes offering made on 16 April. Similarly, the hotel group also scheduled a USD500m senior notes issue to add further funds to its cash pile.
IHG has used its corporate location in the UK to draw on the British government’s Covid Corporate Financing Facility scheme, enabling it to promptly raise GBP600m by issuing commercial paper. Also in Europe, Accor’s real estate arm AccorInvest was reported to have looked at the French government’s support programme, with the potential for a EUR400-500m injection of liquidity. The group put out a statement declaring it had opted not to proceed currently, after Reuters said talks had taken place. One hitch may have been a contingent demand linked to the government-backed funds, which would have required AccorInvest partners including the parent Accor group, and US investor Colony Capital, to inject additional capital alongside.
And US-listed Chinese operator Huazhu has tapped US markets with a USD450m convertible bonds. The 2026 dated paper can be converted into its American depository shares, but will in the meantime pay a 3% coupon. The funds will be used in part to retire convertible senior notes currently in issue with a 2022 expiry.
Among landlords, the lack of income from rents, or from the variable element of flexible leases, is leading to stress. Park Hotels, which mostly holds properties formerly owned by Hilton in the US, is reported to be issuing USD500m of high yield, “junk” bonds to support its finances, while there are also rumours that hotels in the country are already being returned to lenders.

HA Perspective [by Chris Bown]: They’ve already stuck their hands down the back of the sofa seeking loose change, now it’s time to go large. Do you go cap in hand to shareholders, ask your banks for a bit more, or grab a slice of government support? Clearly it depends where in the world you sit, and how supportive your bankers are….

Additional comment [by Andrew Sangster]: If you were to name the one structure you would not want right now it is fixed leases. Little better are variable leases with a minimum guarantee. Unfortunately for Scandic, just 19% of its portfolio is variable lease. The rest is either entirely fixed leases (16%) or variable with minimum guarantee (65%).
At its capital markets day back in mid-February, Scandic was extolling the virtues of the variable lease, talking about alignment between operator and landlord. That is true in most circumstances but in the current environment where the minimum guarantees are under water, the alignment has gone. Just ask Travelodge as it threatens its landlords with going into another CVA unless they agree to cut rents further.
Hotel chains that have avoided leases to focus on either management contracts or franchises are currently much better placed. While they similarly have severely impacted revenues, liabilities are much lower.
But even fee-focused companies have overheads and cash has been raised to ensure survival. Hilton reckons it has enough money to survive 24 months in a situation where it has suffered revenue down 90% and it stays down.
As well as bond sales and drawing down on credit facilities, a notable innovation has been the pre-sale of credit card points. This has seen a new role for loyalty schemes, way beyond the usual marketing and distribution plays, and into finance.
It is difficult to read exactly what Amex and the other card providers have extracted from the hoteliers for the advance payment of points. It will be a big discount for sure. But presumably the banks will also have been asking for some kind of formal reassurance that the points were not going to be devalued.
Points are now a real currency. And the banks will not be shy in ensuring that the creators of the currency – the hotel chains – do not engage in activities that will render the points less valuable in a bout of Weimar Republic style hyperinflation and money printing.

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