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Lehman, Starwood in Le Meridien deal
Jan 02, 04 | 10:05 pm
TweetLehman Brothers Holdings Inc. and Starwood Hotels & Resorts Worldwide Inc. said Dec. 30 they have acquired £ 750 million ($1.3 billion) of senior debt of troubled U.K.-based Le Meridien Hotels & Resorts. The acquisition comes with an unspecified discount, according to the brief announcement
The deal will leave Lehman and Starwood de facto owners of Le Meridien's 126 international hotels. The two said that as part of the deal, they have entered into an exclusive agreement to negotiate the recapitalization of the hotel chain.
Those discussions will include what role, if any, White Plains, N.Y.-based Starwood will take in the management of Le Meridien's operations, according to a company spokesperson. Other sources close to the negotiations expect Starwood to manage the Le Meridien properties. Starwood will fund $200 million of the debt, according to its announcement.
Under the deal, Lehman, which already holds about £ 200 million of Le Meridien's mezzanine debt, and Starwood would pay off senior debt holders in the deal. These creditors are 14 banks led by Merrill Lynch & Co. and Canadian Imperial Bank of Commerce. Lehman would then be in a position to control London-based Le Meridien.
The hotel group's equity, held by a consortium led by Terra Firma Capital Partners Ltd., a British private equity firm, is nearly worthless, a source close to Le Meridien said.
"It doesn't mean we automatically own it, but we'd be in a strong position to negotiate," said a source close to Lehman.
Terra Firma bought Le Meridien from the U.K.'s Compass Group in a deal worth about £ 1.9 billion, in 2001. Le Meridien's fortunes sagged soon after, along with the worldwide decline in travel following Sept. 11, 2001. Terra Firma's chief Guy Hands remains joint chairman of Le Meridien.
Le Meridien has been trying to restructure after breaching agreements with creditors. Earlier this year the hotel company was forced to hand over control of 11 British hotels, including the prestigious Grosvenor House and Waldorf hotels in central London, to creditor Royal Bank of Scotland Group plc, after defaulting on rental payments. Those hotels would not form part of the Lehman-led deal, which would include its 126 international hotels in Europe, the Americas, Asia, the Middle East and Africa.
In buying Le Meridien's senior debt, Lehman and Starwood have trumped Goldman, Sachs & Co., whose Whitehall Fund had offered to buy the debt earlier this month. Lehman holds preemption rights over the senior debt, sources said.
The bank consortium, from which Lehman and Starwood are buying the debt, has effectively run the company for months. Earlier this month, the company announced that the CEO and CFO would step down by year's end, a move seen as a precursor to bringing on a new investor.
Starwood owns and manages hundreds of hotels worldwide under the Sheraton, Westin, St. Regis, W Hotels and The Luxury Collection brands.