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Refinancing tough for hotel sector as lenders become cautious

Hotel sector refinancingHotels have weathered the pandemic storm well with support from lenders, with a bounce-back of trade expected, although for some this may take three to four years to achieve.

This was one of the key conclusions heard at a webinar on hotel financing held yesterday [11 May 2021] attended by over 400 senior industry executives organised by global hotel consultancy HVS, legal expert Bird & Bird, publishing group EP Business in Hospitality, and restructuring advisory firm AlixPartners.

The webinar, moderated by Bird & Bird’s James Salford, kicked off by polling the audience, finding that most expected a 0.5% to 1% increase in debt pricing compared with pre-covid levels. Debt funds were anticipated to become the most active lenders in 2021/22 and most respondents expected resort hotels, aparthotels, and limited-service hotels to be able to raise debt finance more easily than other hotels.

This positive outlook continued with AlixPartners’ Tom Paterson highlighting that the sector had avoided a flood of insolvencies and had, in the main, received support from incumbent lenders. However, the market was currently experiencing a hiatus for traditional lenders whose approach to lending was more cautious. While these lenders were expected to return once cash flows improved, financing was likely to become more diverse as credit funds and other alternative lenders tolerate a greater degree of risk, albeit at a higher cost to the borrower.

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Paterson offered a five-point advice plan to operators: refine your business plan; exhaust self-help measures to boost profitability and improve cash flow; determine your financing objectives; understand your financing options, and engage with the financing market. The growing diversity of lenders would be a positive thing for borrowers, he said.

A panel of experts acknowledged the difficulty in obtaining hotel finance, with only five traditional, or high street banks currently lending. Sarah Green of HotelFinance said that while debt funds were available to operators, they were more costly and not sustainable for long-term financing. Traditional lenders were expected to return to the sector once values and cash flows return.

The audience heard finance experts from HVS Hodges Ward Elliott, Bank Leumi, HotelFinance, Edyn Group and KSL Capital Partners discuss whether covid has accelerated the move away from traditional banks towards alternative lenders, along with the future for ground rent structures, whether mezzanine lenders would bridge the gap as senior debt leverage decreases, and whether the cost of debt would inevitably rise.

Borrowers were advised to have a solid business plan in place for the next two to three years and start the refinancing process now, although it was sometimes preferable to stick with your current lender, even at a higher price. “It’s costly and time consuming to change lender and new money is often more expensive – stick to the devil you know and anticipate refinancing again in a few years’ time instead,” concluded HVS’s Peter Szabo.

Tags: COVID recovery, HVS, Refinancing


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