The coronavirus has wrought dramatic disruption on the business and leisure travel markets, with hotel operators’ asset-light model leaving them uniquely vulnerable. Many operators drew down on corporate lines of credit during the initial months of the pandemic and have contained costs. However, liquidity continues to dwindle as occupancy remains below sustainable levels.
Hotel operators need to evaluate alternative solutions and restructure their balance sheets. Publicly traded hotel brands could seek an influx of funds through share issuances or corporate bond offerings; other options include asset dropdown and intellectual property transactions. Meanwhile, this distress cycle requires managing accelerating liabilities, especially obligations to employees and the government. Hotel operators must also act to protect rights as hotel owners work through restructuring their affairs.
As the hospitality industry looks beyond day-to-day strategies, future challenges emerge. Capitalizing on synergies from scaling organization, streamlining operations, and technological advances presents strategic options.
In this article, Sidley lawyers discuss how hotel operators can navigate uncharted waters at the forefront of legal, financial and business reactions to COVID-19.