Will Le Meridien be bailed out?

In what seems to have been a leak to the press in the UK and US, troubled hotel chain Le Meridien may soon get some breathing space with a capital infusion from Prince Alwaleed bin Talal.

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By  Massoud Derhally Published  July 8, 2003

In what seems to have been a leak to the press in the UK and the US, troubled hotel chain Le Meridien may soon get some breathing space with an infusion of US $208 million from Prince Alwaleed bin Talal.

But people close to the negotiations told Arabian Business, there is talk on the periphery about the prince’s involvement, but that the press is making too much of things right now.

“[Japanese investment bank] Nomura bought this thing highly leveraged, with very little equity and it’s not the best time for hotels with terrorism and the economy,” said one person. “When you have a highly leveraged capital structure at times like this you can expect some issues.”

New reports about the negotiations indicate the hotel chain missed a £20 million ($33.3 million) payment that was due to the Royal Bank of Scotland (RBS) last week. The bank allegedly threatened to sell off 11 hotels it owned in the UK to another chain, according to news reports. Le Meridien, which has 135 hotels in 56 countries, and an estimated debt of £1.9 billion, needs a capital injection of $160 million to try and turn things around.

“It’s a very difficult transaction to do,” said a person close to the negotiations, adding, “I’m not sure what $208 million will do because you have a lot of debt. The money has to be in the context of real restructuring, you have to restructure the balance sheet.”

The source added that various parties have different degrees of interest in the hotel chain and there are different kinds of debt owed to different investors. Investment bank Lehman Brothers is the lead creditor while rival Merrill Lynch also has a stake in the hotel group. Other investors include Alchemy Partners and Terra Firma.

“I don’t know where people get their numbers from because you may need a lot more money than that,” the source added. “No one has seen a business plan based on these numbers that actually make sense.”

Prince Alwaleed has a 24% stake in the Four Seasons hotels, owns the George V hotel in Paris, and has over $1 billion in real estate investments.

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