The conversion of more than $1.1 billion of debt into equity ownership for a group of its lenders gives Aimbridge Hospitality the space it needs to do its job, CEO Craig Smith said.
Aimbridge announced Thursday that it reached an agreement with its lenders to restructure its balance sheet, wiping out the majority of its debt and taking on a new majority ownership group while gaining a $100 million capital infusion. Aimbridge will have, at maximum, $210 million in debt.
The deal is expected to close within the first quarter of 2025.
In an interview with HNN, Smith said the agreement will give Aimbridge one of the best balance sheets in the hotel industry.
"What that does for us is it gives us opportunity, it takes weight off our shoulders," he said. "It gives us the capital we need to further invest in our long-term strategies, and it also gives us the opportunity to invest in ourselves."
Plano, Texas-based Aimbridge is the world's largest third-party hotel management company. Founded in 2003, it manages more than 1,000 hotels in 23 countries.
The financial situation
Essentially, Aimbridge was over-levered, Smith said. Its current majority owner, Advent International, bought its controlling stake in Aimbridge in January 2019. Later that year, it also bought Interstate Hotels & Resorts, merging the two together under the Aimbridge name.
A few months later, the COVID-19 pandemic hit, initially shutting down travel for months. After that, Aimbridge acquired a few bolt-on companies, namely Grupo Hotelero Prisma and Prism Hotels & Resorts in 2021 and then Terrapin Hospitality in 2023. In early 2022, Aimbridge took over management of NewcrestImage's 27 management contracts when NewcrestImage sold its portfolio to Summit Hotel Properties.
When he joined as CEO in March, Smith said he looked over the balance sheets and saw the company needed to take action. Aimbridge began negotiations with its lenders this past summer to work out a solution.
"We did a lot of soul searching," he said.
As Aimbridge met with its lenders, they saw the opportunity to convert the majority of its nearly $1.3 billion in debt into ownership equity, he said.
The restructuring support agreement Aimbridge reached with its lenders will convert more than $1.1 billion in debt to equity, meaning its first-tier lenders will become the company's majority owner. The new ownership group will also give Aimbridge a $100 million capital infusion. Aimbridge's roughly $1.3 billion in debt will be reduced to a maximum of $210 million.
The deal had the support of 80% of Aimbridge's first lien lenders, all of its second lien lenders and its current sponsor, Advent International.
Larry Kwon, managing director at Moelis & Co., served as the financial adviser and investment banker to the ad hoc group of first lien lenders that will take ownership of Aimbridge. He said he was unable to disclose the lenders his company represents at this time. Smith said their identities will be shared soon, and some of the bigger stakeholders are familiar with the industry and how it works.
Kwon said what his clients saw in this situation was the strategy and focus that Smith and his team brought to the company and the positive impact they have had so far.
The two primary financial features of the deal are the dramatic reduction in leverage and the additional cash that goes straight to Aimbridge's balance sheet, he said. Less leverage means smaller interest payments, also bolstering the balance sheet.
"The feeling that the lenders have at this moment is really one of excitement and optimism," he said. "The tenor of the negotiation and the speed with which it happened, I think, really reflected the fact that the lenders in this case are eager to position Craig and his team with the best balance sheet in the industry to really grow the business and service clients."
What's next
As the pending owners, the first lien lenders don't have a particular timeframe in mind for any changes, Kwon said. Their immediate focus after the deal closes is to empower Aimbridge management to continue the work it's been doing.
"I think we all like to think of the industry as being fully healed from all the crazy things that have happened over the last few years, but between a pandemic and rising interest rates, I think this is a moment in time when owners need Ambridge to be strong more than ever," he said.
That will require making sure the Aimbridge team has all the tools and resources it needs to service its hotel owners, he said.
"As these things go, they'll obviously keep an eye on the market," he said. "There are financial investors, and they'll have investors should they have to be mindful of, but the immediate focus right now is really just on letting Craig and his team execute on the plan."
After taking on the role of CEO, Smith said he took a deep dive into the company, reworked its structure and brought in new talent to mix with its existing talent. After setting up its new executive leadership, they worked on setting a long-term strategy. They've since mapped that strategy out to balance scorecards throughout the organization and focus on performance.
When Aimbridge's team first started talking to its lenders, Smith said his direction to them was to be transparent about what they did well and where it's trying to improve.
"I think they were impressed with that plan, so I think that most of them are looking at this as not a quick-flipper," he said.
The lenders see the value not just in Aimbridge but in the sub-industry of third-party management, which has a path for further growth as more hotel brand companies turn to outside operators of its franchised hotels, he said. Finding a company that can scale well and become more sophisticated as it moves forward will create a competitive advantage.
"That's what we showed them," he said. "Here's where we are today. Here's where we'd like to go in the future, and I think they have belief in it."
Smith said the deal won't result in many more changes to the company's organizational structure. When he started, he worked on removing layers from the corporate structure to both reduce cost as well as improve efficiency.
"How quick can we make decisions?" he asked. "If information is passed from a hotel to a regional [vice president], does it make it all the way up?"
Everyone is back in the office now, he said, so anyone who wants to join in a leadership capacity needs to work out of Plano.
These moves have created a lot of synergies going forward, so he doesn't foresee any major changes, he said. There may be some small tweaks here and there, but nothing large.
As far as future growth, the healthy balance sheets open up opportunities to do it the right way, Smith said.
"One of the big pivots for us as a company has been fees over keys and stick to your longer-term contracts rather than just grabbing everything along the way," he said.
In talks with the company's new ownership, he said they've focused on building a company meant to last, not one to be sold right away.
While Aimbridge has grown through mergers and acquisitions before, the company may look at other opportunities to grow in the future, he said. That could involve some joint ventures or sliver equity.
"There's a lot of other opportunities that we have now with a healthy balance sheet," he said.
In explaining the deal to employees, Smith said they've put out a video and some FAQs. They've told employees the new ownership won't affect them or hotel contracts or vendors.
"This is really a change in capital stack," he said.
Smith said when he spoke with hotel owners and the major brands about its deal with the lenders, the feedback has been positive. They all saw quickly this was good for them, too. Having a strong Aimbridge means the company can do what it needs to manage their owned and franchised hotels.