Selina hopes to avoid bankruptcy by seeking a restructuring out of court. Other travel companies that have similarly struggled after going public in a rocky market will watch closely.
Selina, a hotel and experiences brand focused on youth travelers, has to give investors a haircut to receive a capital injection of up to $50 million from Global University Systems (G.U.S). Here are key points in its financial restructuring, which it hopes to finalize within a week or two.
Selina has faced a cash crunch.
Selina went public in a SPAC deal in October 2022.
The deal failed to deliver enough capital to help Selina fund its future operations. Investors in the company that proposed merging with Selina sought redemptions for 96% of their money rather than taking shares in Selina. Since then, Selina has remained unprofitable and seen its capital reserves dwindle.
It debuted at $9.75 a share in October 2022. Selina’s share price was 17 cents (an all-time low) early Tuesday.
Selina has a potential savior.
In June, Selina, arranged a promise of strategic investment led by Global University Systems (G.U.S), which runs for-profit universities. GUS is a profitable private company, generating about $900 million a year with $628 million in cash.
GUS has handed over about $20 million in capital so far.
Before GUS gives another $28 million in equity financing plus up to $40 million of optional equity financing, Selina has to persuade its other investors to agree to a restructuring.
“The current fundraise provides us with liquidity needed to get to the breakeven point [by early 2025], assuming we execute on our initiatives,” the company told investors.
Selina has just publicized the deal and is finalizing it with investors. The company hopes papers will be signed within a week or so, a spokesperson said.
Some investors will get hurt.
Selina’s existing investors face a dilution of their stake in the company. Holders of its convertible notes, or debt, will have to take a haircut on their investments, agreeing to get less in return than they had originally been promised.
Negotiations are ongoing as this is being done out of court. In broad terms released Monday, investors who accept the deal will see their principal reduced and the maturity dates on their notes extended out further (to 2029). In return, they’ll get shares of the company along with new senior secured notes.
Investors don’t appear to have a lot of options other than seeing Selina file for bankruptcy. Yet a court-based restructuring might be costly to all parties.
What success would look like.
Selina’s new backer, GUS, has a vision of success for the company that includes the following points.
- Limiting property growth to existing locations and closing unprofitable ones. This move would bring the number of “bedspaces” Selina offers from 29,600 to 28,000.
- GUS aims to tap into its customer base of students with physical signage at campuses and digital marketing to its virtual students.
- Attempt to boost average systemwide occupancy of 54% to 62% by signing more business-to-business deals, such as corporate retreats, to fill out low-season dates and weekdays. GUS also thinks Selina could do a better job in collecting positive online reviews for stays, distributing through travel agencies, and managing its customer relationship marketing and loyalty program.
- Boosting the “unit economics” of each property by bringing costs under greater control, such as by cutting corporate overhead in half. “Reducing overhead” may mean further cuts to its approximately 2,000 workers.
Selina seems likely to go private.
In a financial filing Monday, Selina said that, under the proposed arrangement, “the parties would agree to support and vote in favor of the delisting of the ordinary shares from Nasdaq and deregistration as an SEC-reporting company.”
Alan Woinski, editor of Skift’s Daily Lodging Report, noted: “If they delist and stop reporting first, not only do they save the company $6 million or so a year in public company costs, the shares will most likely trade at under a penny with a wide spread on the over-the-counter market.”
Delisting will be hard to avoid, regardless. Companies with a share price below $1 can only stay listed on Nasdaq for a year.
Other travel companies that went public via SPAC and have since struggled, such as Inspirato, Sonder, and Vacasa, may also be watching Selina.
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