Yucaipa Cos., largest shareholder of the Morgans Hotel Group Co, has decided to exchange the convertible notes and preferred stock in the company for the ownership in the Delano South Beach and the Light Group.
Morgans Hotel Group will continue to manage Delano South Beach in Miami Beach, Florida, as part of a long-term agreement.Morgans, which put the Delano South Beach on the market last year, has been selling real estate and using the proceeds to expand its management operations and ease its debt burden. “We have transformed the company from an owner/operator of hotels into a global brand and management company,” Chief Executive Officer Michael Gross said on a conference call with analysts. “Today’s announcement marks the significant step forward in realizing that strategy, allowing us to accelerate the growth of our business, significantly reduce our risk profile and enhance our ability to create long-term value for all of our shareholders.”The company has eight signed management deals for hotels that will start over the next three years, which, combined with last September’s opening of Delano Marrakech, will almost double the number of rooms under management, Gross said. The company is in advanced discussions for deals in Los Angeles, Amsterdam, Berlin, Paris, Rio de Janeiro and several cities in India, he said.The transactions will reduce Morgans’ debt and preferred stock obligations by $230 million, including the elimination of $113 million of debt maturing in 2014, the company said. After retiring the credit facility secured by Delano South Beach, which has $35 million of outstanding obligations, the company said it will have $65 million of cash left from the rights offering.Morgans acquired a 90 percent interest in the Light Group, an operator of restaurants and nightclub bars, in 2011. The transaction with Los Angeles-based Yucaipa is expected to be completed in the second quarter, Morgans said.
