British budget hotelier Travelodge has had to call on its lenders for emergency cash to tide it over, and could need more capital shortly as it struggles to cope with its debts, people familiar with the matter told Reuters.
The hotel chain, famed in Britain for its 10 pound-a-night rooms, received an extra 10 million pounds from its creditors in recent weeks, the sources said.
It has also hired lawyers and debt restructuring specialists to advise it on negotiations with its lenders, who are reviewing the business and their own options.
Travelodge, which launched an expansion drive in January, declined to comment.
The group is the latest high profile UK name to run into trouble, after discount clothing retailer Peacocks called in administrators in January. Profit warnings from British companies rose at the fastest rate in a decade in the final three months of 2011.
Travelodge, founded in 1985, providing cheap rooms for weary sales staff driving up and down Britain's highways, is owned by Dubai International Capital
DIC bought the firm from Permira in 2006 for 675 million pounds, backed by loans of 478 million pounds, according to data from Thomson Reuters LPC.
Royal Bank of Scotland
The 10 million pound loan is super senior, meaning it has to be paid back ahead of other debts, the sources said.
Since its acquisition by DIC, Travelodge has invested in building hotels and acquiring new sites and now has more than 470 hotels across Britain, Ireland and Spain, employing more than 6,000 people.
As part of a 246 million pound expansion drive, the company intends to open 41 new hotels this year, including 11 in London as it gears up from a wave of overseas visitors for the Olympic Games. It also has ambitious long-term targets of 1,100 hotels with 100,000 rooms by 2025.
But even no-frills hotels have suffered as Britons have reined in spending. That has led to a deterioration in Travelodge's performance, some of the people familiar with the situation said.
Two other sources stressed, however, that Travelodge's performance was not the main problem, but that its 2006 takeover had saddled in with too much debt. Prices of Travelodge's loans recently fell to deeply distressed levels, Thomson Reuters LPC reported in January.
Talks with lenders could drag on over the coming months and will likely involve the terms of the loans being amended, and either lenders or the owners stumping up more cash, the sources said.
Travelodge is being advised by Clifford Change, Deloitte and Talbot Hughes McKillop, sources close to the matter said.
(Additional reporting by Claire Ruckin; editing by John Wallace)