IHG Gets £600M UK Government Covid-19 Bailout Funds & Occupancy Rates Hovering At 20%

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InterContinental Hotels Group (IHG) yesterday announced that it had received £600M UK Government Covid-19 bailout money.

IHG currently has 50% of its affiliated hotels closed in EMEAA (Europe, Middle East, Africa, and Asia), but only 10% in the US. The occupancy rate at hotels still operating is in the low 20% range.

You can access IHG’s page for coronavirus policies here.

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Here’s the release from IHG:

InterContinental Hotels Group (“IHG”) [LON:IHG, NYSE:IHG (ADRs)] provides a financing update including a waiver of existing banking covenants and provision of additional facilities through the UK Covid Corporate Financing Facility (CCFF), alongside an update to current trading.

Financing update

IHG has secured new financing arrangements to further strengthen its liquidity position.

This includes amending its syndicated revolving credit facility to include a waiver of existing covenants until 31 December 2021.  The amendment introduces a minimum liquidity covenant of $400m, tested at half year and full year, up to and including 30 June 2021 (see note 1 below for further details).

The Bank of England has also now confirmed IHG as an eligible issuer for the UK Government’s CCFF, and IHG has issued £600m (~$740m) in commercial paper under this facility.

G now has access to $1.35bn of cash on deposit and existing bank facilities are currently $660m undrawn, taking total available liquidity to ~$2bn.

Current trading

When we announce our First Quarter 2020 trading update on 7 May, we expect to report that Q1 Global RevPAR decreased approximately 25%, including a 55% decline in March, in line with the Business Update we provided on 20 March.  Trading in Greater China continues to steadily improve, with only 12 out of 470 hotels now closed.  In the US, ~10% of our hotels are currently closed, demonstrating the resilience of our mainstream, franchised business, and, in EMEAA, ~50% of hotels are currently closed.  Occupancy levels in comparable open hotels are currently in the low to mid 20% range across the business.

We will provide a fuller update on 7 May with our First Quarter 2020 trading update.

Conclusion

It is quite interesting that the Bank of England (UK’s central bank) is shoveling cash directly to large companies whose primary operations are outside of the country, such as IHG.

The April to June quarter for all hospitality companies is probably going to be the worst possible with a high percentage of hotels closed and very low occupancy rates. However, I am surprised that IHG’s is around 20% and not 10% like with its main competitors (reason could be that IHG has excluded hotels that have temporarily closed).

Let’s see what level of bailout money Hilton, Marriott, Accor, and Hyatt will get from the US and French governments.

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