Oyo, the global hospitality company, has secured a $825 million senior secured term loan through Deutsche Bank. This funding is set to support Oyo’s $525 million acquisition of Motel 6, its largest deal to date, and refinance existing debt. An additional $65 million in equity funding is also being raised to bolster the acquisition and streamline financial obligations, adding to the $175 million Oyo secured earlier this year.  

 Refinancing Debt to Cut Costs  
The new loan will facilitate the complete repayment of Oyo’s existing Term Loan B (TLB), raised in June 2021, with $446 million outstanding. This strategic move is expected to reduce Oyo’s interest expenses from $101 million in FY24 to $65-70 million in FY25, according to Moody’s. The refinancing is key to Oyo’s broader goal of improving financial efficiency as it prepares for further global expansion.

 Growth in EBITDA and Free Cash Flow  
Oyo is poised to refile its IPO application with SEBI after refinancing its loans at a lower interest rate. The company forecasts becoming free cash flow positive by FY25 and reaching an EBITDA of $200 million in FY26, supported by the integration of Motel 6 and other assets. EBITDA for FY25 is expected to reach $134 million, a significant increase from the $98 million recorded in FY24 and a sharp turnaround from the $34 million loss in FY23.

 Expanding in International Markets  
The acquisition of Motel 6 and the French rental platform Checkmyguest (CMG) will help Oyo derive 65% of its EBITDA from the US and Europe by FY26, according to Fitch Ratings. Additionally, Oyo’s EBITDA margins are projected to grow from 18% in FY25 to 21% in FY26. Cost synergies from these acquisitions, estimated at $20-30 million, will further drive profitability and reduce debt-to-EBITDA ratios from 4.8x in March 2024 to 4.2x by March 2026.

 Operational Restructuring for Cost Efficiency  
Oyo plans to optimize operations at Motel 6 by relocating some roles to India and replacing third-party IT contracts with centralized, in-house technology solutions. These operational efficiencies are designed to reduce costs while maintaining the company’s commitment to quality services.

 Founder’s Role in Capital Raising  
Founder Ritesh Agarwal is playing a pivotal role in Oyo’s latest funding initiatives. Through his new entity, RedSpring Innovation Partners LLP, Agarwal is leading a $65 million funding round, following his personal contribution of Rs 830 crore ($99 million) earlier this year. The fresh capital is expected to increase Oyo’s valuation to Rs 32,000 crore ($3.8 billion), a 60% jump from the previous round, although still below its 2019 peak valuation of $10 billion.

 Enhancing Agarwal’s Ownership Stake  
This funding will also boost Agarwal’s stake in the company by 1.73%. The new shares are being issued at Rs 42.6 each, up from Rs 29 in the previous round. Agarwal, who started Oyo in 2012, has been a consistent driver of its growth, famously taking a $2 billion loan in 2019 to acquire a 20% stake in the company. This move, which surprised the global startup community, solidified his influence within the organization.

 Debt Restructuring and Long-Term Stability  
Agarwal’s 2019 loan terms have since been restructured, with the quasi-equity portion reduced to $950 million and repayment extended to 10 years. The remaining $383 million debt is now due in 2027, giving Oyo additional breathing room to focus on its growth strategy.

Oyo’s $825 million loan marks a turning point in its journey, enabling the company to complete its largest acquisition, optimize costs, and expand globally. With a focus on international markets, operational efficiencies, and financial restructuring, Oyo is positioning itself for sustained growth and profitability, setting the stage for its IPO and future success.