A Japanese hotel chain, once at the center of a bidding war between US private equity firms Blackstone Inc. and Lone Star Funds, faces a reckoning with its creditors.
(Bloomberg) — A Japanese hotel chain, once at the center of a bidding war between US private equity firms Blackstone Inc. and Lone Star Funds, faces a reckoning with its creditors.
Unizo Holdings Co. became the first Japanese company to default on its bonds in six years when it filed for a court-supervised restructuring in April. The firm, which has hotels and office buildings, said it didn’t have the money to pay debt worth 10 billion yen ($72.8 million) maturing in May.
Several of the country’s regional banks warned they may not get repaid.
What happened?
Founded in 1959, Unizo operates hotels across major cities catering to business travelers. After a management buyout financed by Lone Star through an entity called Chitocea Investment Co., it delisted in mid 2020.
Following the sale, Unizo parted with buildings and hotels to generate cash. The hotelier’s troubles came to the fore as a result of the pandemic, which inflicted a sharp blow on the travel sector.
Japan Credit Rating Agency Ltd. cut it to junk in December 2020, citing a decline in its ability to generate cash due to the Covid-19 outbreak and the sale of office buildings that had been a stable source of revenue.
JCR downgraded the company to default on April 27, 2023.
What’s the state of its finances?
Unizo is owned by Chitocea Investment, an entity formed by Unizo’s employees and led by President Yuhei Yamaguchi, according to a filing.
Because it is closely held, there’s little financial data in the public domain. At the time of its April court filing, Unizo said it had total liabilities of 126.2 billion yen. The actual documents submitted to the Tokyo District Court aren’t publicly available.
A spokesperson for the Tokyo-based company did not return Bloomberg’s request for comments made through multiple phone calls and an email.
Rising Law Office, one of the law firms representing Unizo, said the hotelier’s debts consist of bank loans worth about 64.9 billion yen and 61 billion yen of corporate bonds.
As a result of the court filing, seven yen-denominated notes sold by Unizo are now due for redemption. The real estate firm has said that it was trying to identify the bondholders.
Here’s a list of the securities:
Any broader ramifications?
The default may cause trouble for small Japanese financial institutions already struggling as a result of the pandemic, dwindling rural populations and the effects of low interest rates.
Hokkoku Financial Holdings Inc. said about 1.5 billion yen of its 4.6 billion yen loan to Unizo isn’t backed by collateral and that it is analyzing the impact on its financial results.
Bondholders also potentially face big losses.
What are the next steps?
Unizo has entered into civil rehabilitation in Japan, a rough equivalent to Chapter 11 bankruptcy in the US.
The objective of such proceedings is to revitalize an entity, according to the website of law firm Nishimura & Asahi. The debtor remains in control of ordinary business matters but the court typically appoints a supervisor, whose approval is needed for actions beyond normal operations. Unsecured creditors need to file claims with the court, the website says.
Unizo’s court-appointed supervisor is attorney Hirohisa Kagami.
Unizo plans to hold a meeting on May 9 with banks and discuss recovery plans, according to people familiar with the matter.
The company intends to hold a bondholders’ meeting separately, according to another person, who declined to be named because the matter is confidential.
–With assistance from Rie Morita, Finbarr Flynn and Catherine Bosley.
(Updates with background on asset sales in fifth paragraph)
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