Hotel Finance Strategies in the Wake of COVID-19: Debt Restructuring; Utilizing PPP and Main Street Lending Program

Recording of a 90-minute premium CLE webinar with Q&A


Conducted on Thursday, June 18, 2020

Recorded event now available

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Program Materials

This CLE webinar will discuss the options currently available to hotel operators and their lenders impacted by the COVID-19 economic and travel shutdown. The panel will discuss the complex issues presented with foreclosure or restructuring of distressed hotel loans. The panel will also address how new CARES Act loan programs--the Paycheck Protection Program (PPP) and the Main Street Lending Program--might facilitate new financing to enable operators to survive the shutdown and how they may fall short for hotel operators.

Description

The economic fallout from the COVID-19 pandemic has raised many issues for real estate borrowers and lenders. Perhaps the most immediate impact has been in the shutdown of the hotel industry. Most hotel loans are or likely will be in default in the near term. There are alternatives to loan restructuring or foreclosure of distressed hotel properties; counsel needs to be well-versed on the options. Hotel owners and their counsel should also understand how to address covenant defaults related to COVID-19 and understand strategies to avoid triggering recourse to the loan sponsor.

Hotel loan workouts are more complex than other real estate workouts. The hotel management and franchise agreements may give control and exclusive rights to the operator and franchisor--with approval right to lenders and other interested parties. Licenses, permits, and contracts may be in the name of the manager--and steps must be taken (or side-stepped) in order to avoid or limit personal liability of the loan sponsor. Operating agreements, hotel franchise agreements, loan documents, and governmental requirements might be inconsistent, with competing interests of the parties. The dynamics of those arrangements (and more) must be considered in the context of a loan modification foreclosure, workout, or bankruptcy of the borrower--and the ultimate impact upon the sponsor.

The CARES Act provides potential financing alternatives that might enable hotel borrowers and lenders to avoid workout and foreclosure. Loans administered by the SBA, such as the PPP, offer a short-term funding solution to cover payroll, mortgage interest, and other costs, but available funds are limited and certain program requirements pose difficulties in the context of hotel owners and operators.

The Main Street Lending Program could provide more long-term relief. It provides hotel owners and hotel operators the ability to either upsize an existing term loan or take out a new loan, with the government taking substantially all of the repayment risk by purchasing 95% of the loan from the lender. The program might enable hotel owners/operators to obtain much needed liquidity and avoid possibly complicated intercreditor issues and covenant restrictions because existing lenders are providing the additional funds and thereby consenting to further debt, although many details of the how the program will function in practice remain to be seen.

Listen as our authoritative panel analyzes the financing options available to hotel borrowers during the business and travel shutdown.

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Outline

  1. Working out a hotel loan: issues unique to hotels; competing stakeholders
    1. Preserving the franchise
    2. Management company with exclusive rights, continuing control
    3. Licenses, permits, and contracts
    4. Employees
    5. Covenant defaults
    6. Recourse obligations
  2. The Paycheck Protection Program: short-term relief, limited funds and hotel complexities
  3. The Main Street Lending Program
    1. Ability to upsize existing loan
    2. The federal government takes on 95% of repayment risk
    3. Favorable terms
    4. Unknown details

Benefits

The panel will review these and other issues:

  • What concerns particular to hotels (and their sponsors) must be addressed before proceeding with restructuring or foreclosure of a hotel loan?
  • Are hotels eligible to participate in the Paycheck Protection Program? Is consent of the current lender required?
  • How does the Main Street New Loan Facility differ from the Main Street Expanded Loan Facility?
  • What is the process for applying for and closing a loan under one of the Main Street Lending Program facilities?

Faculty

Brock, Joshua
Joshua D. (Josh) Brock

Attorney
Frost Brown Todd

Mr. Brock represents institutional lenders and borrowers in complex real estate transactions. He has represented...  |  Read More

Hambly, Ann
Ann Hambly, CRE

Founder & CEO
1st Service Solutions

Ms. Hambly has been involved in every aspect of the CMBS industry throughout her 35+ year career. She has been an...  |  Read More

Mullen, Keith
Keith H. Mullen

Of Counsel
Shackelford Bowen McKinley & Norton

Mr. Mullen’s expertise includes creating, implementing, and managing over 17 lending, distressed debt, and...  |  Read More

White, Geoffrey
Geoffrey M. White

Office Member-in-Charge
Frost Brown Todd

Mr. White represents borrowers, developers, owners, investors, lenders, loan servicers, and managers in the financing,...  |  Read More

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