Liquidators are to be called in at embattled hotels group Le Meridien, owner of the prestigious Grosvenor House and Waldorf in central London, if a suitable rescue plan fails to materialise by Friday.
The deadline coincides with a quarterly rent payment of around £20m to Royal Bank of Scotland, which owns a number of Le Meridien's hotels in the UK, including the Grosvenor and Waldorf. The payment is due on 30 June but Le Meridien, which is managed by Guy Hands's Terra Firma fund, does not have sufficient funds to pay.
One source close to the talks said: "At the moment, it will be difficult to raise the money to pay RBS. This is also money that Le Meridien could be paying down debt with instead."
The ultimatum was issued by Le Meridien's banks, which are understood to have tired at the length of time it is taking to reach an agreement on what should happen to the debt-laden group.
The consortium of around 20 banks, which include the Royal Bank of Scotland, are currently propping up the business. Le Meridien - hit hard by the global economic slump - breached its convenants earlier this year and has debts of around £1bn. Other lenders include Merrill Lynch, CIBC World Markets and Lehman Brothers, which holds £160m of mezzanine debt, due in 2005.
Equity investors Nomura, Abbey National and Jon Moulton's Alchemy Partners have already written off the value of their stakes.
The complex Royal Bank sale and leaseback deal was part of the original terms of the Le Meridien takeover. The chain, which has 135 hotels in 56 countries, was bought for £1.9bn two years ago by a consortium put together by Mr Hands, then head of the principal finance unit at Nomura.
It is understood, however, that Royal Bank is reluctant to change the terms of the rental agreement, and the issue has become a sticking point in negotiations.
There are two main proposals on the table. The first is that Terra Firma injects £100m into the company, with Alchemy prepared to add £30m on top of that. In return, some of the lenders are expected to make sacrifices, for example by allowing the mezzanine debt to be written off and rents to be renegotiated.
The other proposal is focused on Lehman Brothers. The bank is in talks with Blackstone, the American private equity house that owns the Savoy group, about buying Le Meridien's continental European hotels. Blackstone is interested, although Lehman is also talking to other parties. A deal with Blackstone could involve Royal Bank taking over the UK hotels.
The banks, however, are reportedly unhappy with both schemes in their current forms and expect improved proposals to be presented on Friday.
Should liquidators be called in, the business's assets would be split up and sold off. Rival chains Hilton, Accor and Marriott are all known to be interested.Reuse content