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Red Roof Inn hits the roof, defaults on mortgage

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Red Roof InnThe motel chain Red Roof Inn hit the roof this week with a thud, defaulting on over $350 million of mortgage payments. The chain, purchased by Citigroup Inc.'s (NYSE:C) Global Special Situations Unit and Westmont Hospitality Group from Accor SA two years ago for $1.3 billion, has suffered a drop in overnights of over 10% since the acquisition.

Red Roof Inn was started in 1972 by Jim Trueman. (Trueman is better remembered as the car racing fan, who provided the opportunity for star driver, Bobby Rahal, to start his career.) The company was based in Columbus, OH until its sale to Accor, and returned there after its most recent sale. The chain has grown to 345 locations, in 36 states. 133 of these Inns are owned by franchisees. 131 of the company-owned Inns were put up as collateral for the four mortgages the chain received. Total debt, according to the Wall Street Journal (subscription required), approaches $1.2 billion.

A spokesman from Red Roof Inn told the Journal that the company is attempting to restructure its debt, and will remain in operation. Nonetheless, I suspect some franchisees are already shopping for a new color for the roofs of their properties.

About a third of Red Roof Inn's mortgage debt was secruitized, as is common in the hotel business . The WSJ cites information from Trepp LLC showing that the default on such bonds has grown from less than 1% a year ago to 5% this month.

European hotel giant Accor sold Red Roof Inn to focus its energy on growing its more successful Motel 6 chain. Accor operates almost 500,000 hotel rooms in 90 countries.

In the struggling hotel/motel industry, expect more highly leveraged chains to bite the dust if travel doesn't pick up sharply this summer.

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Last updated: November 08, 2009: 06:00 PM

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