China’s Huazhu, Owners of Deutsche Hospitality, Leverage Covenant Waiver for Existing Syndication Loan

Main Photo: The Steigenberger Wiltcher’s Hotel, Brussels, Belgium

Date: April 2020

Location: China, and through Deutsche Hospitality, global

Name: Various brand names

No. of Keys: 552,362 – 88,355 leased and owned; 464,007 franchised

Who: Huazhu Group Limited, a serious player in hotels in China, announced a leverage covenant waiver for existing syndication loans Upon the completion of Deutsche Hospitality on January 2, 2020, they added the 5 new DH hotel brands – Steigenberger Hotels & Resorts, Maxx by Steigenberger, Jaz in the City, Intercity Hotel and Zleep Hotel, into their portfolio.

On April 17, 2020, their syndication banks approved to release Huazhu from the original six-month-tested financial covenants for a period up to June 30, 2021, subject to the satisfaction of certain amended covenants. The 3-year syndication loan consists of US$500 million and €440 million, due in December 2022. The amended covenants mainly include: (1) minimum EBITDA requirement of RMB1 billion for the second half of 2020; (2) net asset value should be more than zero; and (3) no cash dividend during the waiver period.

China, where COVID-19 first started to have an impact in late January, has experienced steadily improving trends. Domestic travel is gradually rebuilding with eased travel restrictions and national policy for resuming production and work. The number of their temporarily closed hotels declined from the peak of 2,310 hotels in mid-February down to 369 hotels as of March 31, 2020. During Q1 2020, the government authorities requisitioned accumulatively 610 Huazhu hotels (2 million room nights, 12% of which were from our leased hotels) at various locations and periods for medical support workers and quarantine purposes. As of March 31, 2020, Huazhu had 374 hotels under government requisition.

Since the COVID-19 outbreak in Europe in March, DH has temporarily closed its hotels. 85 DH hotels were temporarily closed as of March 31, 2020, including 49 leased hotels and 36 manachised and franchised hotels.

“Excluding the addition of DH, net revenues for Q1 2020 are expected to decline 45% to 47% (not fully reflecting the revenues from our hotels under government requisition) year-over-year. We don’t recognie the revenues from our hotels under governmental requisition until the settlement from government authorities. Including the revenue contribution from DH, net revenues for Q1 2020 are expected to decline 14% to 16% year-over-year.”

Heading into Q2 2020, more business and leisure travel demand continues to recover in China. They are now accelerating new hotel openings and signings of new franchisees to help us keep on track toward our 2020 growth target.

THPT Comment: Some glimmer of hope both in the Chinese and DH areas of activity.

First Seen: Huazhu press release

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