A bank had provided a loan in the mid double-digit million euro range for the development and operation of a luxury hotel and resort in Tuscany. In addition to the boutique hotel with 40 rooms, the development project includes around 1,500 hectares of land with building permits for 28 detached luxury villas. 14 of the villas had already been completed and sold to wealthy private individuals. During the high season, around 150 employees were employed to run the hotel and resort.
Despite a previous restructuring, the project once again fell into a severe liquidity crisis due to construction delays and cost overruns. The hotel was completed and opened. However, the planned turnover was missed by a wide margin, while the cost forecasts were massively exceeded. As the owners were no longer able to raise fresh capital, the company was on the verge of insolvency.
Options for the lending bank examined - appointed as CEO
The interim manager was initially commissioned by the bank to evaluate the options from the bank's perspective and explore possible solutions. An expert commissioned by the interim manager came to the conclusion that, in the event of insolvency, the hotel would have to be closed and the loan claim largely lost. Against this background, the interim manager negotiated the takeover of the company shares by the bank (debt/equity swap) with the owners in order to facilitate a going concern perspective for the resort. Ultimately, the owners transferred their shares to the bank and the interim manager was appointed CRO and CEO of the company.
The brief to the interim manager was:
- Avoid a "hard" insolvency by negotiating an amicable agreement with the remaining creditors
- Restructure and ensure the sustainable profitability of the "hotel" and "resort" divisions
- Maximize the recovery from the bank's credit exposure
Creditor protection proceedings and preparations for planned insolvency initiated
At the beginning of the mandate, the company was faced with overdue claims. Various creditors had already threatened to initiate enforcement measures. The cash reserves were largely exhausted. The interim manager therefore first initiated the application for creditor protection proceedings ("Concordato Bianco") at the competent insolvency court in Siena. Together with a core team from the company, he then began negotiations with the company's 350 or so creditors (from the local ice cream parlor to the tax authorities). The objectives were deferrals, including a partial debt waiver and the preparation of an amicable agreement as part of planned insolvency proceedings. In order to create the conditions for this, the interim manager reorganized the company's previously inadequate accounting system and added efficient controlling with cost/performance accounting for each business unit and liquidity planning.
Foundation created for sustainable profitability of the hotel
After the risk of uncontrolled insolvency was initially contained, the interim manager focused on creating sustainable profitability for the company. He renegotiated the contract with the hotel operator and achieved a reduction in fixed costs and the introduction of performance-related components. The previous year-round opening hours were reduced to eight months. Work processes in administration, housekeeping and reception were made more efficient, resulting in a 20 percent reduction in personnel costs. At the same time, a special budget was made available for the international marketing of the hotel.
Outsourcing the construction work improves liquidity
The interim manager also renegotiated the contractual basis with the partner for the development of the resort. The company transferred overall responsibility for completing the construction of the individual villas to the partner. The company, which had previously been responsible for the entire construction of the villas itself, now only sold the land, while the partner was responsible for the construction. This meant that the company no longer had to maintain resources for the planning and construction of the villas and was able to collect income from the sale of the plots more quickly. In negotiations with the local municipality, the interim manager achieved the designation of five additional building plots on the company's site and a reduction in the property tax burden.
Continuation of the hotel secured - recovery for the bank maximized
Nine months after the task began, the interim manager reached a consensual restructuring agreement in which the creditors agreed to a debt waiver of between 30 percent and 50 percent. The agreement and the corresponding restructuring plan were approved by the insolvency court.
The hotel's net operating income (NOI) was improved and turned into positive territory. The company's overall cost burden was significantly reduced. In addition, the sale of several villa properties significantly improved the liquidity situation. This enabled cash reserves of several million euros to be built up.
After a stabilization phase of around two years, the company was sold to an investor in the premium segment. As a result of the sale, the bank received a repayment of around 70 percent on the loan exposure, significantly more than the once imminent extensive loan default in the event of insolvency.
