City & Business: Queens Moat hurdles

All has gone ominously quiet over the financial restructuring of Queens Moat Houses - so quiet, in fact, that you begin to wonder whether concrete refinancing proposals are ever going to emerge from the complex morass of interlocking problems that make up the sorry tale of this once substantial hotels group. Insiders insist that steady, if plodding, progress is being made but admit that a solution is still months away at best.

The biggest hurdle appears to be the position of mortgage debenture holders. They have first charge over some of the most desirable hotels in the group, including the Royal Crescent in Bath and the Caledonian in Edinburgh. Even so, the debenture portfolio is worth far less than is supposed, such has been the fall in hotel values, and on paper at least the group has an absolute obligation to meet the shortfall from its other assets. If debenture holders were to claim their security, bankers would be left with such poor cover that it would hardly be worth continuing with the restructuring exercise; better to stem the flow of professional fees and overhead costs by calling in the receivers.

Advisers to the group insist that everyone is in the same boat; all classes of lender and stockholder are going to have to make sacrifices if the restructuring is going to work. So far debenture holders have proved surprisingly pliant, a phenomenon perhaps explained by the fact that Queens Moat has been highly successful in keeping arbitrageurs and vulture capitalists off the register of holders.

Normally in these restructurings, such operators are only too vocal in insisting on their rights, writs and fists flying. It can only be a matter of time before they make their entry. That's when things will start to become really hairy.