A hotel company has an Rs 800 crore bond due in 12 months, EBITDA of Rs 120 crore and lenders willing to lend 4.5x. Should it refinance, amend and extend, or sell a hotel? Size the gap and recommend a path.

Sell the hotel, refinance the rest and negotiate a small extension: the gap shrinks from Rs 220 crore to Rs 82.5 crore. Refinancing alone covers Rs 540 crore plus Rs 40 crore of usable cash. Selling at 10x EBITDA raises Rs 250 crore but cuts capacity by only Rs 112.5 crore. Extending the whole bond fills the gap but leaves leverage near 6.5x and interest cover at 1.25x.

Size before you choose. The market will lend 4.5 times Rs 120 crore, Rs 540 crore, and Trivik can spare Rs 40 crore of cash, so Rs 220 crore of the bond has no source. A maturity wallA large amount of debt falling due at one date, which must be refinanced, repaid or restructured all at once. is like a family whose home loan balloon payment falls due when the bank will only lend them three quarters of it again: the first question is how big the shortfall is, and only then which asset or relative fills it. Today the bond costs Rs 64 crore a year, cover of 1.88x, so the business is not failing; it simply carries more debt than today's lenders will refinance.

Because the buyer pays a higher multiple than lenders lend. The hotel sells at 10x its EBITDA, while it supported only 4.5x of debt, so every rupee of EBITDA sold brings in more cash than the debt capacity it removes. Selling Rs 25 crore of EBITDA raises Rs 250 crore and costs Rs 112.5 crore of capacity, a net gain of Rs 137.5 crore. The gap falls to Rs 82.5 crore. That is the deleveraging arithmeticSelling assets at a multiple above the leverage multiple reduces debt faster than it reduces EBITDA, so leverage falls. behind most asset sales in a restructuring.

Sell the hotel, refinance Rs 427.5 crore with banks, and ask bondholders to roll the remaining Rs 82.5 crore for two or three years at a stepped-up coupon. Bondholders are being asked to extend about a tenth of their claim while being repaid nine tenths in cash, which is a far easier vote than extending all of it. Interest cover after the plan is 1.67x against 1.25x if the whole bond is extended at 12%, and leverage is 5.16x against 6.50x.

Then name the risks in order of timing. The sale must close well before the maturity, so start it now and put a deadline in the bank commitment. Banks may lend less than 4.5x if hotel trading weakens, and a 0.5x cut in the multiple removes about Rs 48 crore of capacity. The limit of the recommendation: the hotel being sold may be among the better ones, and buyers usually want the best asset, so check that the remaining seven can carry the debt on their own.