Bank dispute starves Queens Moat of cash

Jason Nisse,John Shepherd
Saturday 10 April 1993 23:02

AN Anglo-German bankers' dispute is threatening to hold up the release of much-needed cash for Queens Moat Houses, the hotels group whose shares are suspended and which last week asked its banks for a 10-week standstill on payments.

The banks are owed more than pounds 1bn, and the row involves pounds 30m of cash which is tied up in Germany and the UK.

Barclays, the lead bank to the group which is owed more than pounds 100m, is taking legal advice over the status of pounds 15m deposited with it by Queens Moat.

The balance of the pounds 30m is stuck in banks in Germany where Queens Moat has more than 40 hotels.

The pounds 15m - deposits generated by Queens Moat's normal operations - is effectively frozen by German banks which are owed money as part of a DM550m (pounds 230m) loan, agreed with them last August.

A DM1.8m interest payment is due on the loan on Tuesday, and Queens Moat is desperately trying to find enough cash to cover this payment and keep the loan from going into default.

Queens Moat has asked the accountants Grant Thornton and the surveyors Weatherall Green & Smith to produce a detailed report into the financial position of the company.

Though that report will not be completed for some weeks, initial indications are that the group will have to write down as much as pounds 300m against the value of its hotel assets and in addition will report a loss of up to pounds 80m for last year.

Such an outcome would breach the covenants of the German loan and enable the banks to demand immediate repayment.

A number of the German banks are holding Queens Moat deposits as a 'set off' against their loans.

Barclays has asked Commerzbank, one of Germany's largest banks, to mediate over the problem, which threatens to starve Queens Moat of vital cash in the run-up to the lucrative summer season.

'There are substantial credit balances tied up all over the group,' said a senior banker. 'If it could use all this cash, there would not be a problem at Queens Moat.'

The difficulties at Queens Moat, which have led to the suspension of finance director David Hersey and deputy chairman Martin Marcus, emerged while the group was negotiating a new banking facility of DM750m.

As negotiations progressed, it emerged that the optimistic view of the company's profitability which had gained currency in the stock market, was at odds with reality.

Investors are angry that Mr Marcus sold 1.1 million Queens Moat shares for pounds 629,500 just before the company went into its 'closed period', and are demanding an investigation. Bankers to the company are convinced that its problems can be overcome.

They point out that even after the write-downs, the group will have pounds 1.7bn of assets, compared with pounds 1bn of debts, and has the ability to generate good cash flows once there is a firm hand on the tiller.

Queens Moat is currently hunting for a new chief executive. Among those named as possible candidates are Robert Peel, head of Mount Charlotte Hotels, and David Michels, the former Hilton UK head who has turned around Stakis, the hotels and casinos group. A decision is expected in the next few days.

(Photograph omitted)

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