Cadwalader client puts QMH debt plan in doubt

Cadwalader Wickersham & Taft has thrown Queen Moat House’s (QMH) debt restructuring into a state of flux after client Goldman Sachs Whitehall Fund bought up large debt and equity stakes in the troubled hotel operator.

QMH, represented by Freshfields Bruckhaus Deringer, has been battling to stay afloat under a creaking £630m debt – a legacy from its near collapse in 1993 – since last year.

The process of restructuring the company was nearing conclusion; bidders for QMH’s UK, German and Dutch businesses are thought to be moving towards exclusivity. It was hoped that a sale of the divisions would satisfy holders of more than £230m in junior debt, represented by Bingham McCutchen.

A meeting with holders of two tranches of debenture debt totalling £215m, which is secured on QMH’s UK assets, is scheduled for 2 June, when it is hoped the company will secure an agreement to repay the stockholders earlier than expected. The debenture debt-holders are being represented by Denton Wilde Sapte.

However, Goldman Sachs Whitehall Fund bought a 19 per cent equity stake in QMH more than a week ago. Since the fund is acting in concert with another shareholder, Westmont Hospitality Group, its combined stake in QMH is 29.6 per cent, just shy of the 29.9 per cent required to trigger a mandatory bid for the company.

Whether the equity stake will give Goldman Sachs Whitehall Fund much leverage is doubtful. QMH announced that, even if a sale of the business goes through, it would be unlikely that the shareholders and investors in the junior convertible debt, believed to total £80m and ranked just ahead of the equity, would receive any returns from an auction.

However, according to sources, Goldman Sachs Whitehall Fund has
also taken a stake in the junior term debt, which is likely to be repaid through the sell-off of divisions.

It is understood that a number of parties are vying for the businesses. French-based Accor, in conjunction with US investment firm Colony Capital, is believed to be bidding for QMH’s UK business and is being advised by Weil Gotshal & Manges. Soros Private Equity Partners is thought to have thrown its hat into the ring for the German business.

It is understood that Soros has retained Latham & Watkins for the deal, consolidating the US firm’s relationship with the powerful investment group after they worked together, along with Goldman Sachs PIA Apollo Management, on the financial restructuring of Cablecom.