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Pandemic pushes Carlson Travel, survivor of further downturns, into bankruptcy

The pandemic has claimed a titan in the Minnesota business community.

Carlson Travel Inc. and 37 related companies have been forced into bankruptcy amid the global collapse in business travel, which fell nearly 80% in North America from 2019 to 2020, according to court records in the United States. bankruptcies.

Carlson officials did not respond to requests for comment. The Minnetonka-based company has said in court records that it does not expect its business to return to pre-pandemic levels in the next three years. A sale is possible; he sought court permission to hire an investment banker last week.

The company expects to lose $ 15 million on revenue of $ 701 million next year, a substantial drop from 2019, when Carlson Travel earned $ 239 million on $ 1.5 billion in revenue , according to court records.

The privately-held company’s revenue is expected to rebound to just over $ 1 billion in 2024. The company and its subsidiaries collect fees by booking business trips and hosting meetings and events.

“Although the COVID-19 pandemic has affected many industries, few industries have been hit as drastically as the travel industry,” Carlson CEO Michelle Frymire said in an affidavit filed in court. bankruptcies. “Business travel and face-to-face events and conferences came to a screeching halt almost overnight.”

In the United States, business travel revenue in 2021 is expected to remain more than $ 59 billion below 2019 revenue, according to a recent report from the American Hotel & Lodging Association, a leading business group. In 2020, business travel fell by $ 49 billion. Hotels have cut nearly 500,000 jobs over the past two years, according to the trade group.

Minnesota saw some of the biggest declines, with business travel falling from $ 1.16 billion in 2019 to about $ 321 million in 2021, a 72.2% drop. Only eight other states recorded larger declines, led by Massachusetts at 84.8%.

Carlson Travel’s core business is CWT, formerly Carlson Wagonlit Travel, a global travel services company employing more than 12,000 people in 45 countries. In 2019, CWT was a leader in business travel, booking thousands of business trips daily for government agencies, corporate giants and small and medium businesses around the world.

An average day before COVID-19, CWT handled about 100 meetings and events, communicated to 70,000 travelers, and facilitated more than 240,000 transactions, according to bankruptcy records. The company processed more than $ 23 billion in hotel reservations, airline flights, car rentals and other business travel expenses in 2019.

Travel management became Carlson’s top priority after the company sold its portfolio of 1,400 hotels in 2016 to Chinese conglomerate HNA Tourism Group. Carlson had been in the hotel business since 1962, when founder Curt Carlson and several investors purchased their first Radisson hotel in Minneapolis.

Carlson Travel filed for bankruptcy court protection in November after further efforts to reorganize the company’s finances failed to stop the bleeding, bankruptcy records show.

In 2020, the company saved around $ 500 million through time off and pay cuts in 33 countries. In total, the company temporarily cut around 5,000 jobs. He’s also renegotiated key contracts and leases, suspended capital-intensive projects, and cut nearly all incentive compensation programs. These changes permanently reduced operating costs by about $ 300 million per year, according to records.

The company also restructured its finances by raising $ 125 million in new equity from its owners and borrowing $ 260 million.

Carlson believed these measures would be sufficient until another spike in COVID-19 cases erupted in 2021 as the travel industry began to recover, court records show.

“In the United States, where the recovery was initially seen as strong, the recent increase in the delta variant and nationwide delays in ‘return to office’ initiatives have created significant uncertainty in the overall pace of the recovery. domestic travel, ”Frymire said in the affidavit. .

“Finally, even when the demand for travel management services started to increase, it became evident that CWT’s operating costs would increase before it realized an increase in revenue due to its need to rehire or rehire. bring back from leave the employee base needed to serve its customers, ”she added.

The company filed for Chapter 11 protection in November after obtaining approval for a prepackaged reorganization plan from its owners and lenders.

The plan will eliminate about half of the company’s $ 1.6 billion debt and provide $ 350 million in new equity.

The company asked the court to approve the plan 18 hours after the case was filed in Texas, noting that a delay of days or weeks “could have a significant and negative impact on the debtor’s business, including causing customer attrition and associated loss of revenue. “

However, the US trustee in Texas has asked the courts to delay approval, noting that the company’s “hectic schedule” makes it impossible for creditors to assess and respond to 38 bankruptcy cases.

Despite the protest, a Texas bankruptcy judge approved Carlson’s plan the same day the trustee filed his complaint without commenting on the objection.

“I think … implementing the plan will allow reorganized debtors to succeed in the ‘new normal’ of the travel industry,” Frymire said in an affidavit filed last month supporting the plan.

However, the company’s future remains on the line. Last week, Carlson sought court approval to hire Houlihan Lokey as a financial advisor and investment banker. Among his duties, Houlihan Lokey would help Carlson assess any proposed purchase of the company.

Houlihan Lokey tested the waters last year, when seven parties expressed preliminary interest in purchasing some or all of CWT’s assets. Ultimately, however, talks ended after a single bidder emerged with an informal offer that failed to garner support from Carlson bondholders.

In a liquidation analysis filed in court, Carlson Travel and its subsidiaries were valued at $ 1.1 billion, but creditors are unlikely to recover more than $ 202 million from a sale, records show.