Discount hotel chain Travelodge offered an attractive pick-up in its dual-tranche senior secured bond due to price on Friday, its first deal since it ran into difficulties during the pandemic when it was forced to launch a company voluntary agreement to reduce its rental payments.
The company is set to price, via issuer TVL Finance, a £550m-equivalent offering through a five-year non-call two sterling-denominated fixed-rate note and a five-year non-call one euro-denominated FRN.
The expected £330m tranche saw final price guidance come in at a yield of 10.625%, with a coupon of 10.25% and price of 98.575. The level compared with IPTs offering a yield of 10.75%–11%.
The notes offered an attractive pick-up, in the view of Tanvi Arora, European high-yield bond analyst at Lucror, who saw fair value for the sterling tranche in the 10% to 10.5% range.
The expected €250m five-year non-call one FRN, meanwhile, had final price guidance at Euribor plus 550bp, with a 97.5-98 OID, compared with initial terms of 96-97.
The trade is seen as a bellwether for the sterling high-yield market in particular, which has been relatively undersupplied, with the last deal being from crossover credit Ford Motor Credit in late February.
One high-yield investor said the offering could be seen by some accounts as problematic.
“Travelodge has been in trouble many times and its latest owners took over the company as part of a debt restructuring. Not many people are going to like this deal as you are deeply subordinated and the company was stripped of their property assets,” he said.
Proceeds from the Travelodge bond (B-/B3) will be used to repay £424m of senior secured floating rate notes due 2025 at par, repay £65m senior secured fixed rate notes due 2025 at a price of 102 and refinance its super senior revolving credit facility with a new £50m RCF, as well as refinance letter of credit facilities, both maturing in 4.5 years.
The company's £65m 9% January 2025 bond jumped three points to a cash price of 99.30 after the bond announcement, while the July 2025 FRN was last bid at 99.25, according to Tradeweb.
The transaction marks the return of the UK budget hotel company to the debt capital markets after an absence of almost four years. Its last deal was the July 2025 FRN, which raised £440m in June 2019.
Travelodge, owned by Goldman Sachs, GoldenTree and Avenue Capital, ran into difficulties during the pandemic after it failed to pay its rents in the second quarter of 2020. At the time, the company launched a CVA to reduce the rents it pays on its 564 hotels by at least 50% until the end of 2021.
In a presentation, chief executive Jo Boydell said the company has already paid back half of its Covid support debt and that it intended to repay the other half through this transaction, as the company aims to match its capital structure to the profitability of the business. She also noted that the company continues to outperform the sector.
After the transaction, the company projects gross senior secured leverage and net senior secured leverage will be 2.6x and 1.9x, respectively based on Ebitda of £213m in the last 12 months to December 2022.
Goldman Sachs (B&D) and Barclays are global coordinators and bookrunners, while Citigroup and JP Morgan are bookrunners.
Updated story: Adds final pricing for sterling note