According to one debenture holder, members of his fellow holders' credit committee have been led to believe that they will not have to face dilution. But this could change, as the debt-laden hotel company's 65 banks have yet to agree to the current restructuring proposals.
The debenture holders have the strongest hand in the restructuring because they have the right to seize the 27 hotels that back their debentures.
They can do this because trust deeds require that the properties should be worth at least 150 per cent of the nominal value of the outstanding debenture stock. Falls in the property market mean that it has dropped well below this level.
A core group of British institutions on the credit committee has always backed the attempts of the management, led by Andrew Coppel, chief executive. But some rogue debenture holders have agitated against the management.
At a meeting last December, the company only just managed to scrape together the support it needed to stop the debenture holders from enforcing the security.
Stanley Metcalfe, chairman, said then: 'You should be in no doubt that an enforcement of the security by the debenture holders would threaten the survival of Queen's Moat.'
The restructuring proposals have been passed by the steering committee of the Queen's Moat Houses bank's, but are still awaiting the approval of the rest of the banks.
The proposals outline a plan to convert an initial amount of debt into equity. If trading conditions worsen, or the company fails to meet profit targets, there is a contingency plan to convert more debt into equity.
Existing shares would still be worth something in both scenarios, but the second plan would leave shareholders with only a small percentage of the total equity.
It is hoped that the restructuring will be completed and the shares relisted on the London Stock Exchange before the end of the year.
The shares were suspended at 47.5p on 31 March last year.Reuse content