Pandemic drives Carlson Travel, survivors of other downturns, into bankruptcy

0


The pandemic has claimed a titan in the Minnesota business community.

Carlson Travel Inc. and 37 affiliates were forced into bankruptcy by the global business travel collapse, which declined nearly 80% in North America from 2019 to 2020, according to bankruptcy court files.

Carlson officials did not respond to requests for comment. The Minnetonka-based company said in court records that it does not expect any return to pre-pandemic levels in the next three years. A sale is possible; it applied for court permission last week to hire an investment banker.

The company expects to lose $ 15 million on $ 701 million in revenue over the next year, a significant drop from 2019 when Carlson Travel made $ 239 million on $ 1.5 billion in revenue, such as Show court records.

The privately held company’s revenue is expected to rise to just over $ 1 billion in 2024. The company and its affiliates earn fees by booking business trips and scheduling meetings and events.

“While the COVID-19 pandemic has adversely affected many industries, few industries have been as radically impacted as the travel industry,” said Michelle Frymire, CEO of Carlson, in an affidavit filed with the bankruptcy court. “Corporate travel, personal events and conferences stalled almost overnight.”

In the US, business travel revenue in 2021 is projected to stay more than $ 59 billion below 2019 revenue, according to a recent report from the American Hotel & Lodging Association, a leading trade group. In 2020, business travel decreased by $ 49 billion. According to the trading group, hotels have cut almost 500,000 jobs in the past two years.

Minnesota saw some of the sharpest declines, with business travel falling from $ 1.16 billion in 2019 to an estimated $ 321 million in 2021, a decrease of 72.2%. Only eight other states saw major declines, with Massachusetts leading the way at 84.8%.

Carlson Travel’s primary business is CWT, formerly Carlson Wagonlit Travel, a global travel services company that employs more than 12,000 people in 45 countries. In 2019, CWT was a leader in business travel, booking thousands of business trips daily for government agencies, corporate giants, and small and medium-sized businesses around the world.

On an average day before COVID-19, CWT hosted about 100 meetings and events, communicated with 70,000 travelers, and enabled more than 240,000 transactions, bankruptcy filings show. The company processed more than $ 23 billion in hotel bookings, plane flights, car rentals, and other business travel expenses in 2019.

Travel management became a priority for Carlson after the company sold its portfolio of 1,400 hotels to Chinese conglomerate HNA Tourism Group in 2016. Carlson had been in the hotel business since 1962 when founder Curt Carlson and several investors bought their first Radisson hotel in Minneapolis.

Carlson Travel filed for protection in a bankruptcy court in November after other efforts to clean up the company’s finances failed to stop the bleeding, bankruptcy filings show.

In 2020, the company saved approximately $ 500 million through vacation and pay cuts in 33 countries. In total, the company temporarily cut around 5,000 jobs. In addition, important contracts and leases were renegotiated, capital-intensive projects were suspended and almost all incentive compensation programs were cut. These changes have permanently reduced operating costs by about $ 300 million per year, records show.

The company also restructured its finances by raising $ 125 million in new equity from its owners and raising $ 260 million.

Carlson thought these steps would be enough until another spike in COVID-19 cases broke out in 2021, when the travel business began to recover, according to court records.

“In the United States, where the recovery was initially perceived as strong, the recent surge in the Delta variant and nationwide delays in return to office initiatives have created significant uncertainty about the overall pace of the recovery in domestic travel,” Frymire said in the affidavit Explanation .

“Eventually, even as the demand for travel management services began to rise, it became clear that CWT’s operating costs would rise before CWT generated higher revenues as the workforce required to serve its customers was reinstated or brought back from vacation had to become. “She added.

The company applied for Chapter 11 protection in November after receiving approval from its owners and lenders for a pre-built reorganization plan.

The plan will reduce approximately half of the company’s $ 1.6 billion debt and provide $ 350 million in new equity.

The company asked the Texas court 18 hours after filing the case in Texas to approve the plan, stating that a delay of just a few days or weeks “could materially and adversely affect the debtor’s business, including through customer churn and associated loss of income “. . “

However, the US trustee in Texas asked the courts to postpone approval because the company’s “breakneck schedule” made it impossible for creditors to assess and respond to 38 bankruptcy cases.

Despite the protest, a Texas bankruptcy judge approved Carlson’s plan the same day the trustee filed his complaint without commenting on the objection.

“I believe that … the implementation of the plan will enable the reorganized debtors to thrive in the ‘new normal’ of the travel industry,” Frymire said in an affidavit submitted last month in support of the plan .

However, the future of the company remains in the game. Last week, Carlson sought court approval to hire Houlihan Lokey as a financial advisor and investment banker. His duties include helping Houlihan Lokey, Carlson evaluate proposals to buy the company.

Houlihan Lokey tested the waters last year when seven parties expressed tentative interest in purchasing part or all of CWT’s assets. Ultimately, however, the talks ended after only one bidder emerged with an informal offer that did not find support from Carlson’s bondholders.

In a liquidation analysis filed in court, Carlson Travel and its affiliates were valued at $ 1.1 billion, but creditors are unlikely to get back more than $ 202 million on a sale, records show.


Share.

Comments are closed.