April 1, 2013
/PRNewswire/ -- Morgans Hotel Group Co. (NASDAQ: MHGC) ("Morgans" or the "Company"), the
-based hospitality management company, today announced that it has signed agreements with The Yucaipa Companies ("
") to cancel
's interests in the Company's convertible notes, preferred stock and stock warrants in exchange for the Company's ownership interests in Delano South Beach and The Light Group. This marks the culmination of a 15-month exploration process by a Special Committee of the Board to review strategic alternatives.
The Company will continue to operate
Delano South Beach
pursuant to a long-term management agreement. In addition, the agreements provide that the Company will launch a
rights offering available to all Morgans' shareholders, which
will backstop at no-fee should the rights not be exercised in full. The combined transactions will reduce Morgans' debt and preferred stock obligations by
, which includes the elimination of
of debt maturing in 2014. In addition, after retiring the credit facility secured by
Delano South Beach
, which currently has
of outstanding obligations, the Company projects it will have
of cash remaining from the rights offering.
"This is a transformative deal that will significantly improve our financial position and accelerate the strategic development of our business," said
, CEO of Morgans. "The asset swaps and rights offering will dramatically strengthen our balance sheet, significantly reduce our debt obligations and risk profile, and also eliminate significant near-term maturities. In addition, the cancellation of the preferred stock and warrants will result in a simplified and more flexible capital structure for our shareholders."
Mr. Gross also noted: "We are announcing this important deal in the context of strong momentum in our business. We expect first quarter System-Wide Comparable RevPAR to be up 16% to 18%, which is the highest rate of growth since the first quarter of 2007, and at
we expect room revenue to be up around 40%. We are also seeing increased interest from development partners in our target regions and expect to announce new management and branding agreements in the coming months. With the recent opening of Delano Marrakech, the completion of
's room renovations and eight new hotels projected to open in the next three years, we are excited about our ability to expand our business and increase shareholder value."
Under the agreements, Morgans will transfer its ownership interests in Delano South Beach and The Light Group (including its obligations under
in promissory notes) to
in exchange for the cancellation of the following securities held by
- $88 million principal amount of the Company's 2.375% Senior Subordinated Convertible Notes due 2014;
- 75,000 shares of the Company's Series A Preferred Securities, with an accumulated preference amount of $99 million; and
- Warrants to acquire 12.5 million shares of the Company's common stock at $6.00 per share until April 2017.
In addition, Morgans will also receive
in cash for the Company's leasehold interests in three restaurants at Mandalay Bay,
that will be operated by The Light Group, and
will pay the remaining note obligations of the Company with respect to the acquisition of such leaseholds. Morgans will retain its long-term agreement with MGM Resorts International to convert THEhotel to Delano Las Vegas.
The agreements also provide that the Company will launch a
rights offering available pro-rata to all the Company's shareholders at
per share. To ensure that the Company raises the full
has agreed to fully backstop the rights offering, with no fee, should the rights not be exercised in full.
Proceeds of the rights offering will be used to retire the Company's credit facility secured by
Delano South Beach
that currently has
of outstanding borrowing and a
letter of credit drawn. The remaining
of cash will be available for general corporate purposes and investment in new hotel contracts.
Subject to the satisfaction of customary closing conditions, the transaction is expected to be consummated in the second quarter of 2013. A shareholder vote is not required to approve any of the combined transactions.