In-room entertainment systems specialist LodgeNet is to file a pre-packaged Chapter 11 bankruptcy protection plan that will see private equity fund Colony Capital take 100% control of the company.
Under the plan, Colony will provide US$60m of new…
In-room entertainment systems specialist LodgeNet is to file a pre-packaged Chapter 11 bankruptcy protection plan that will see private equity fund Colony Capital take 100% control of the company.
Under the plan, Colony will provide US$60m of new capital to support a proposed recapitalization of the company. A portion of this will then be used to pay any pre-petition claims made by LodgeNet’s unsecured creditors. Holders of the existing series B convertible preferred stock and common stock, however, will have their holdings cancelled.
In parallel, a steering committee of the company’s lenders have agreed to amend the existing US$346m secured credit facility, extending it for a further five years. Certain of the lenders have also agreed to provide a debtor-in-possession loan of up to US$15m to cover the company’s operations during its accelerated Chapter 11 process.
Colony has also executed a memorandum of understanding with US satellite broadcaster DirecTV under which LodgeNet and DirecTV will form a strategic partnership within the hospitality and healthcare markets. The deal will expand the current free-to-guest programming agreement and see DirecTV branding, content, advertising and support throughout LodgeNet’s in-room offering. In return, LodgeNet estimates that the partnership will significantly reduce its capital requirements.
Commenting on the deal, Richard Nanula, principal at Colony said: “As evidenced by our investments in hospitality, media and entertainment, we believe in these markets, and with LodgeNet positioned at the crossroads of all three, this opportunity is tailor-made for Colony Capital.
“We look forward to leveraging our experience and key industry relationships to drive change at a critical time for the company and the industries it serves. Together with DirecTV and our hospitality and healthcare customers, we are committed to building on the company’s position as the preeminent provider of commercial entertainment and connectivity services.”
LodgeNet’s downfall is a classic example of a company rapidly gaining scale through transformational acquisitions and then struggling to manage the debt that funded this as revenues plummeted during the economic downturn.
Founded as Satellite Movie Company in 1980, the company grew rapidly on the back of the rising popularity of on-demand movies and internet connectivity in hotel and hospital rooms. Having listed in 1993, LodgeNet became the dominant market leader in 2007 after it purchased rival On Command from Liberty Media for US$380m, partially funded through a US$225m loan.
At its peak in 2008, LodgeNet served 2 million rooms with an average revenue per room of US$24.5. But the slump in the travel industry has meant that this has now fallen to approximately 1.5 million rooms at US$20.71 per room. Worse still, its once lucrative movie rental business has declined even more rapidly as consumers have turned to personal electronic devices.
This fall in revenues led to the company struggling to meet its debt commitments and at the end of 2012, LodgeNet failed to make the scheduled cash interest payments on its revolving credit and term loan. It only avoided defaulting after its lenders agreed to an extension.
Miller Buckfire & Co, FTI Consulting and Moorgate Securities served as financial advisers to LodgeNet on the transaction with Weil, Gotshal & Manges its restructuring legal counsel and Leonard, Street and Deinard its corporate legal adviser. Colony Capital was advised by Guggenheim Securities with Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor and Sullivan & Cromwell its legal counsel. Akin Gump Strauss Hauer & Feld and CDG Group acted as advisers to the special committee of the lenders.
