Hands dubious about hotel plan

Guy Hands, the corporate financier, has privately conceded that talks with Saudi billionaire Prince al-Waleed bin Talal about a deal to rescue hotel chain Le Meridien are unlikely to win the backing of the company's main banks.

The banks are said to prefer proposals to stave off administration from US investment bank Lehman Brothers.

While Mr Hands, through his investment vehicle Terra Firma, is the privately owned business's lead shareholder, he has been forced to write off the value of the stake following a sustained downturn in the hotels sector.

As a result, much of his influence over negotiations has shifted to senior debt holders who are believed to prefer a rescue package being put together by Lehmans. The investment bank could be forced to write down more than £200m in mezzanine debt to Le Meridien if a rescue is not secured. Senior debt holders include CIBC and Merrill Lynch.

One source close to the negotiations said that Lehmans was expected to provide a £150m investment as part of its rescue package, giving the bank control of Le Meridien.

Such a deal, the source said, had been close to agreement for some weeks, but wrangling over interest rate arrangements between the banks has held Le Meridien on the brink of collapse.

Last month, the hotels group missed a £20m quarterly rent payment to Royal Bank of Scotland, which owns Le Meridien's UK properties. Last Friday, Lehmans and senior debt holders each contributed £2m towards an interim payment to RBS, which is said to have threatened to bring in a rival hotel operator to manage the properties.

Le Meridien stakeholders now have until July 16 to agree a rescue deal.

It emerged over the weekend that Prince al-Waleed, the world's 11th richest man, had been talking to Terra Firma about a possible rival rescue. A deal would still be possible if Lehmans was unable to get agreement for its package.