QMH gathers support to stop hotel seizures: Experts warn vote by debenture holders is in the balance

ABOUT 30 per cent of Queens Moat Houses' mortgage debenture holders have pledged to support the debt-laden hotel chain and vote against seizing the 27 properties that back their debentures at meetings next Tuesday.

QMH needs the support of 75 per cent of the stockholders to pass the extraordinary resolution proposing that they do not 'enforce the security' for the time being. Failure would throw the company restructuring into disarray.

But some experts in 'distressed securities' have predicted that many will vote against the resolution. 'I do not know of any informal plan to enforce the security, but I think that as time goes on it is becoming clear that different creditors have different degrees of security and interests. It would be irrational not to attempt to enforce one's position if not one's security,' said one.

In a circular to debenture stockholders outlining the extraordinary resolution, QMH's management discloses that it has the support of 30.96 per cent of the 10.25 per cent First Mortgage Debenture Stock 2020, and 32.01 per cent of the 12 per cent First Mortgage Debenture Stock 2013.

Stanley Metcalfe, chairman, has signed the following recommendation: 'The board, which has been advised by Morgan Grenfell & Co Limited, considers that the proposed directions to the trustees not to enforce is in the best interests of stock holders. Accordingly, the board strongly recommends shareholders to vote in favour of the extraordinary resolutions.'

Debenture stockholders have the right to seize the 27 hotels because a valuation by Jones Lang Wootton, the surveyors, shows that the value of the mortgaged property amounts to only 67 per cent of the nominal value of the debenture stock outstanding. The trust deeds require that it should amount to 150 per cent.

Specialists in distressed bonds speculated that debenture stockholders might use their position at least to force a reduction of the new management's salary and bonus packages.

Denis Woodhams, of the shareholders' action group, has condemned the system of bonuses and other payments to the four-man board in which three directors will receive pounds 100,000 each when banks refinance the company and another pounds 100,000 each when it is refloated.

The action group is urging investors not to accept the annual report at next week's annual meeting. John Bairstow, the group's founder, has already registered his proxy vote against acceptance. He has reportedly argued that the new directors do not have sufficient understanding of the pounds 1.3bn fall in property values that has left the group with a pounds 1bn pre-tax loss.