Yahoo Finance

American hotels are worried about foreclosing as the novel coronavirus leaves most of the country on lockdown, and franchisees of the most recognized names in accommodation are turning to the nation’s central bank for help.

With few people checking into hotels, the American Hotel and Lodging Association (AHLA) is projecting a 60% to 80% decline in revenue for the remainder of 2020. The concern: that hotels will be unable to work with their commercial mortgage servicers to make their debt payments, thus triggering a wave of defaults.

One possible lifeline: the Federal Reserve’s forthcoming Main Street Lending Program, which would offer four-year loans to large borrowers with up to $5 billion in revenue or 15,000 employees.

Wyndham Hotels and Resorts (WH) said Tuesday that its franchise network of about 9,300 hotels, including brands like the La Quinta and Super 8, could turn to the Fed’s program to weather the plunge in occupancy rates. The company said occupancy rates had fallen as low as 22%, during the week of April 11.

Rates that low are problematic for a company that estimates its breakeven point to be 30%. Still, Wyndham CEO Geoffrey Ballotti told analysts Tuesday morning that loans and programs like the Paycheck Protection Program — which provides forgivable loans to small businesses — will allow the company to survive at an even lower breakeven point.

“The passage of the Main Street Lending act could be another big support,” Ballotti said in an earnings call. “We believe our franchisees have ample liquidity and support.”

The Fed’s program was not passed through a specific act, but it will be supported by $75 billion of equity investment appropriated by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Fed plans on levering up that equity into $600 billion of loans.

Wyndham franchisees have already tapped into the PPP; the company says 95% of its franchisees had already applied for a PPP or an emergency disaster loan. About 80% were actually approved for one or both loans, meaning that prolonged stress will force franchisees to turn elsewhere for help.

The Fed’s program, however, is not yet live.

Default would be ‘disastrous’

The AHLA had warned that the PPP would not be enough, and specifically called on the Fed to create a backstop to the commercial mortgage-backed securities experiencing stress due to the wave of forbearance and other loan modifications.

In mid-April, the hotel lobby asked the Fed to set aside a $10 billion fund to take on CMBS debt payments in exchange for loans with 2% interest and a 10-year amortization schedule.