Mini‑Case (Germany | single asset | managed hotel): Why the 3 Clause Clusters Decide the Deal

Introduction

Following my recent post on the three deal-defining clusters in German/European managed hotel financings, here is a short anonymised case that illustrates why these clauses are not “boilerplate”—they determine whether the financing works operationally while remaining lender‑credible.

Deal set‑up

A sponsor refinances the acquisition of a single German city hotel (full service; business + leisure mix). Performance is solid but seasonal (strong Q2/Q3, weaker Q1). The hotel is managed under an HMA with an international operator.

1.     Cash Management & Waterfall

❌ First draft (friction risk)

The initial documentation effectively pushed for “hard” controls from day 1—tight restrictions on operating payments and broad cash language that didn’t reflect how a managed hotel actually runs day‑to‑day.

✅ Market compromise (Germany/Europe standard)

Control was implemented the continental European way:

• Operating Account (in owner/OpCo name; manager operates under mandate)
• Debt Service Account for IPDs with a clear waterfall
• Deposit Account for extraordinary proceeds (insurance/compensation/disposals/hedge break)
• Springing Cash Trap Account only on defined triggers

2.     Covenants & Cure Ladder (seasonality is key)

❌ First draft (false positives)

DSCR was tested quarterly without seasonality logic, with an early lock‑up trigger. For a seasonal city hotel, this created a realistic scenario where Q1 could trigger a cash trap, despite healthy annual performance.

✅ Market compromise

• DSCR moved to TTM (or another seasonality‑aware approach).
• A cure ladder was introduced to avoid hair‑trigger escalation.

3.     Operator / Brand Controls (the HMA is the “lease”)

❌ First draft (too sharp)

Operator/brand events were treated almost like immediate financing events, with short cure windows and limited time to stabilise the asset.

✅ Market compromise

• Consent rights limited to material HMA/brand changes.
• Workable cure + replacement period.
• Clear stabilisation mechanics before any default escalation.

Outcome

Lenders kept robust downside protection when it matters. Borrowers preserved operational flexibility while the hotel trades normally, avoided unnecessary Q1‑driven lock‑ups, and kept the operator framework financeable.

➡️ Exactly why managed hotel financings in Germany/Europe are often decided less by headline pricing and more by these three clause clusters: cash mechanism | covenant design | operator controls.

More on managed hotel financings (Germany/Europe): www.djm.legal

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