Share dealings in Queens Moat suspended: City surprised by move as hotel operator's refinancing collapses

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SHARE DEALINGS in Queens Moat Houses, one of Europe's largest hotel operators, were suspended yesterday pending clarification of the company's financial position.

City sources say the move followed the collapse yesterday of a refinancing deal being handled by National Westminster and Barclays, the main bankers to the company, which runs nearly 200 hotels with more than 22,000 rooms.

Queens was valued at pounds 440m before the suspension, which froze the shares at 47.5p. The move sent shock waves through the stock market, particularly in the hotel sector.

Shares in Forte fell 9p to 192p, Friendly Hotels lost 6p to 155p, Savoy dropped 10p to 760p and Resort Hotels slipped 2.5p to 39.5p.

Sources say the suspension arose because of problems with a DM750m ( pounds 313m) syndicated refinancing loan.

They added that a formal announcement of the refinancing was going to be made alongside next Wednesday's release of Queens' results for 1992.

However, John Bairstow, chairman and joint managing director of Queens, is believed to have told NatWest and Barclays yesterday that its 1992 profits would fall considerably short of City expectations of around pounds 85m before tax.

His disclosure, the sources added, meant that the basis used to calculate the terms and conditions with lenders had become invalid, and needed to be renegotiated. Barclays, NatWest and Queens all declined to comment.

Hotel industry analysts, several of whom had recently recommended investors to buy Queens shares, were stunned by yesterday's events.

Dealers in broking houses could only speculate as to what reasons lay behind the suspension, having been left in the dark by the bare statement issued by the company.

There were some fears that the heavily indebted company was going into receivership. Others thought that it had merely breached a minor banking covenant.

The problem was, said one analyst, that 'something serious is going on here, and you have got to assume the worst because of the usually serious meaning behind the statement of 'pending clarification' of the company's financial position'.

He also said that of particular concern was Queens' other decision to defer yesterday's dividend payment on its 7.5 per cent preference stock, which would have cost just pounds 7m.

Another problem is that besides running more than 100 hotels in the depressed UK market, the company also has nearly 40 hotels in Germany, which has slid rapidly into recession since the middle of last year.

Analysts reckon that Queens' debts at the end of 1992 were about pounds 1.1bn, equal to nearly 77 per cent of shareholders' funds of pounds 1.3bn. The company also has pounds 100m of off-balance sheet debt, arising from two sale and leaseback deals struck with the Bank of Scotland in 1991.

The Bank of Scotland refused to comment about its exposure.

Concern about Queens' financial position heightened last year, when the company unexpectedly divulged explicit details about its banking covenants in its report in August on trading for the first half of 1992.

Queens' shares slid 8p to a year's low of 57p on the interim results, which showed a 5.4 per cent rise in pre-tax profits to pounds 38.1m.

Any favourable sentiment about the profits improvement, however, was squashed by the disclosure that some main banking covenants were set on Queens' operating profits having to be twice the size of interest charges.

Half-year operating profits, including rents, were pounds 71.3m, just 2.14 times the size of finance charges of pounds 33.2m. In addition, Queens had unexpectedly suffered a cash outflow during the half-year of pounds 53m, which took net debt to pounds 790m - equal to more than 62 per cent of shareholders' funds.

Queens' shares remained depressed for the rest of 1992, but rose sharply in the new year as leading analysts said fears about the company's debt problems had been overdone.

More recently, though, the shares have eased with investors following the lead of Martin Marcus, the deputy chairman and joint managing director, who sold 1.1 million of his 2.7 million shares in February at prices of 57.5p and 57p.

(Photograph omitted)

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