RBS hotel decision blindsides Avestus

ROYAL BANK of Scotland’s decision on Tuesday to appoint a receiver to a portfolio of Marriott Hotels in the UK appears to have completely blindsided Dublin-based Avestus Capital (formerly Quinlan Private), judging by correspondence sent to Irish investors that very day.

RBS appointed Ernst & Young as receiver to 42 Marriott-branded hotels in Britain, for which the bank had provided about £900 million in debt in 2007.

Avestus clients invested £92 million in the hotels through a Cypriot-registered vehicle called Weldana Ltd. This investment has effectively been wiped out.

Early on Tuesday afternoon, Avestus clients received an update about the financial restructuring relating to the hotels that had been under way for more than a year. It gave no hint of what was to happen later that day.

“Since our last update, on 28th April, there have not been any significant developments in respect of the debt restructuring,” Avestus partner Thomas Dowd reported to clients.

“To date, it appears that RBS has declined to negotiate with the hedge fund which bought out the Lehman debt position. We do not believe that either party will allow the status quo to continue, and we would expect that sooner or later the parties will attempt to move matters forward.

“In recent days, RBS have agreed to a call with the shareholders and we expect this to happen in the coming days, after which we hope the level of engagement may pick up.”

Just hours later, news broke that EY had been appointed as a receiver by RBS.

Dowd had even run through a scenario whereby the Weldana investors might pony up fresh funds to “defend/propose (as the case may be) any restructuring proposals”.

He warned that Weldona was “likely to find itself marginalised” and it would be “difficult to negotiate with credibility” if it didn’t contribute to the cost of the restructuring process.

Little did they know that the rug was about to be pulled from under them by RBS.

The Marriott deal was overleveraged. Avestus must shoulder some blame for this.

It will also have to explain to Weldana clients why it was so out of touch with events on Tuesday.