In a sign of banks' resurgent interest in commercial real estate, Bankers Trust New York Corp. is leading a $505 million loan for Bristol Hotel Co.'s purchase of 61 Holiday Inns from Bass PLC.
Bankers Trust, with units of Wells Fargo & Co. and Banc One Corp. acting as co-agents, has agreed to provide the loan in connection with the $659 million cash and stock deal.
The loan, which will help make Dallas-based Bristol the largest owner of full-service hotels in North America, is part of a major revival in hotel financing. The bank's securities unit, BT Securities, has been a big player in the revival, helping to provide about $8.5 billion of hotel financing this year.
Expected to close in the second quarter of 1997, the loan also illustrates the more conservative approach banks are taking to the hotel business following the real estate bust of the late 1980s.
"It's consistent with our view that senior secured financing should be structured using conservative underwriting parameters, which first and foremost rely on historical cash flow," said Jacques Brand, managing director and co-head of the lodging practice at BT Securities.
Banks in the 1980s found hotel loans to be among the most troublesome pieces of their commercial real estate portfolios. They exited the business in droves after a lending binge in which they often lent 100% of construction cost of hotels that failed to produce enough cash flow to pay interest on the loans.
Typical of today's hotel financing, the $505 million loan amounts to only 40% to 45% of the value of the hotels being acquired, based on their cash flow, Mr. Brand said.
The loan also is conservative in terms of debt service coverage, he said. He estimated that the cash flow from the hotels was sufficient to pay two and a half to three times the annual interest on the loan.
The loan, priced at 200 basis points over the London interbank offered rate, is "very attractive from a risk-reward perspective," Mr. Brand said.
Bankers Trust has been an active player in Bristol's emergence as a leader in the hotel industry.
When the hotel company went public in 1995, Bankers Trust led a $120 million senior secured credit facility, was sole manager of a $70 million issue of senior subordinated notes, and acted as co-manager with Merrill Lynch and Smith Barney of a $100 million initial public offering of stock.
The acquisition from Bass, the United Kingdom pub and leisure retailer, will enable Bristol to diversify, adding presence in the Northeast and in California, among other regions.
"This puts us in 17 of the top 25 markets," said chief executive Peter Kline, who praised BT Securities' round-the-clock efforts to get the deal done.
Although the deal provides virtually no opportunity to shave costs by eliminating overlapping operations, Mr. Brand said Bristol has established a track record of improving returns in previous acquisitions.
Shares of Bristol rose $1.50, to $30.125, on news of the deal.