Shares in Holiday Inn owner InterContinental Hotels (IHG) jumped 4.4% this morning to £35.09 after it tapped into £600m of Bank of England funding and secured new lending arrangements with its banks.
The extra money gives the hotel group, whose brands include Holiday Inn, InterContinental, Crowne Plaza, Six Senses and Staybridge Suites, around $2bn in liquidity, comprised of $1.35bn cash on deposit and $660m of undrawn banking facilities.
Negotiations with the banks included amending its syndicated revolving credit facility to include a waiver of existing covenants until the end of 2021, introducing a minimum liquidity covenant of $400m, tested at half year and full year, up to and including 30 June 2021.
Meanwhile the Bank of England confirmed IHG as an eligible issuer for the government's Covid Corporate Financing Facility, allowing it to issue £600m of state-backed commercial paper.
REVENUE PLUNGES IN 'CHALLENGING CONDITIONS'
The cash should come in handy given IHG said in a trading update ahead of first quarter numbers on 7 May that its global RevPAR (revenue per available room) dropped 25% in the first three months of the year, driven by a 55% plunge in March as the coronavirus pandemic took hold.
It had said in a previous update in March that cancellation activity for April and May, and booking trends at the time, indicated ‘continued challenging conditions.’
However, in a glimpse of the start of a ‘return to normal’ in China, the company said only 12 of its 470 hotels in the country are still closed, while only 10% of its US hotels are closed.
It’s a different picture for IHG in Europe, the Middle East, Africa and Asia with around 50% of its hotels currently closed.
'LOW RISK BUSINESS MODEL'
Although a significant number of its hotels are open, many are relatively empty with occupancy rates in the low-to-mid 20% range across the business.
Yet in a research note at the start of April analysts at Royal Bank of Canada upgraded InterContinental to ‘outperform’, highlighting its ‘low-risk business model’ and estimating that it would be able to ‘easily absorb’ a reduction in earnings from the coronavirus pandemic.
The analysts estimated at the time that IHG would still generate positive cash inflows in 2020 and that a reduction in revenue would ‘utilise fewer resources’ due to the firm's positive working capital balance.
They also pointed to the fact the company was 'relatively ungeared operationally' because of its franchise model.
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