• Sol rebuilds balance sheet

Sol Melia is issuing €200m of convertible bonds in an effort to shore up its balance sheet. The move follows a technical breach of one of its debt covenants over the summer.

The company was forced to price the issue at the top end of its indicated range at 5% and it offered a conversion premium of roughly 30% above the current share price.

The covenants are that EBITDA to net interest has to be over or equal to four times and net debt to EBITDA has to be below or equal to 3.5 times. At June 30, net debt to EBITDA was 4.11 times.

In July, Sol sold the Hotel Melia Madrid Princesa for €87.8m (it had been valued at €103m in 2007) and this took the net debt to EBITDA ratio down to 2.97 times. EBITDA to net interest increased to 4.92 times from exactly four times.

The company is continuing to pursue sales of assets. Of its 80 owned hotels, 60 are free of debt. But it will primarily focus on selling non-strategic properties and then it is seeking EBITDA multiples in excess of 12 times on the disposals.

Sol has €305m of debt maturing before the end of 2010 and thus even with the recent bond issue, further restructuring can be expected.

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