Lone Star finances £680m Jurys Inn acquisition

Lone Star has secured debt financing for its £680m purchase of the Jurys Inn hotel chain, Real Estate Capital can reveal.

The private equity firm has chosen Bank of America Merill Lynch to provide the debt, a £476m loan reflecting a loan-to-value of 70%.

The funding has a term of three years with two one year extension options which Lone Star may exercise depending on how far the firm is through its asset management plan. A margin of just above 300bps has been agreed. BAML is understood to have fought off strong competition from other investment banks for the mandate.

BAML is to syndicate the majority of the debt which is being split into two tranches – £374m of senior at an LTV attachment point of 55% and a further mezzanine tranche of £102m.

The portfolio comprises 31 hotels, all of which are in the UK and Ireland other than one, which is located in Prague. Lone Star is buying the business from a consortium comprising the Oman Investment Fund, Mount Kellett, Avestus Capital Partners, Westmont Hospitality and Royal Bank of Scotland.

The sale brings to an end Jurys’ complex recent history and will see its private equity and bank owners repaid. The chain was bought by Irish investor Derek Quinlan, whose interests are now managed by Avestus, in 2007 for £791m and in 2008 Quinlan sold a 50% stake to the Oman Investment Fund. At a distressed point in the cycle in 2012 RBS, the company’s largest lender, undertook a £300m debt for equity swap and Westmont and Mount Kellett bought their stake for £120m.

The financing between BAML and Lone Star is the second major deal the pair have completed over the past year. Last April, the bank backed the private equity firm in its €1.3bn purchase of the 2m sq ft Coeur Défense office complex in Paris with a €935m whole loan.

Lone Star now has a UK and Irish portfolio of more than 100 hotels for which it has paid more than £1.3bn. It will look to combine these using the Jurys Inn platform that it will eventually sell or float. It also acquired Puma Hotels, Chelsea Harbour Estates, Curzon Hotel Properties and Sommerston Hotels in February last year through its acquisition of Project Rock from IBRC.