The UK’s top 30 hotel groups have debt levels 44% higher than they had during the credit crunch, making it more difficult for the sector to weather the Covid-19 economic crisis without government help, according to private wealth law firm Boodle Hatfield.
The firm has reported total debts for the UK’s top 30 hotel groups now stand at £6bn, compared with £4.2bn in 2009.
Debts of the top hotel groups are now an average of 106% of shareholders assets compared with 91% of shareholders assets in 2009, which will make it harder for hotel companies to “add to existing debts in order to trade through the crisis or refinance those debts as facilities reach maturity”.
The news comes as hotels have been required by law to close to almost all members of the public due to the Covid-19 pandemic.
Boodle Hatfield said that UK hotel groups have “added to their debt levels” over the last few years as many of them have gone through major capital investment programmes, especially in London, in order to attract higher margin customers and maintain occupancy rates.
Many hotel companies have also used the sale and leaseback model so as to return capital to shareholders, which has reduced their asset base against which they can borrow.
Rajeev Joshi, partner at Boodle Hatfield, said: “Providing more visibility and certainty over when the sector is going to start opening up again is important for lenders’ confidence. Removing some of the guesswork involved in the sector’s financial modelling will be key.”
“We would also like to see the government and the Bank of England more actively marketing the various funding schemes they have made available to the sector. There is a real risk that some borrowers won’t apply for available support because they assume they won’t get it.”
The firm said many hotel groups have applied for loans through the government’s CBIL scheme to help them through the coronavirus. However, many smaller, independent hotels have struggled to access these loans, despite the UK Government guaranteeing 80% of loans made to companies with a turnover of £45m or below.
Boodle Hatfield added that in addition to these stimulus loans, further measures will be necessary to support the hotel sector.
Joshi concluded: “Social distancing measures are likely to remain in place for the foreseeable future. Hotels need to start thinking about how they can adapt in order to survive these challenging times.”