S&P upgrades Extended Stay, rates new notes BB-

Standard & Poor’s said it raised its corporate credit rating on Extended Stay America Inc. to BB- from B+. The outlook is stable.

At the same time, S&P raised its issue-level rating on ESH Hospitality Inc.’s senior secured term loan to BB+ (two notches above the corporate credit rating) from B+ and revised the recovery rating on the term loan to 1 from 3.

The 1 recovery rating indicates an expectation for very high (90% to 100%) recovery for lenders in the event of a payment default.

S&P also assigned the company’s proposed $500 million senior unsecured notes issuance due 2025 a BB- issue-level rating and 3 recovery rating, indicating an expectation for meaningful (50% to 70%; lower half of the range) recovery for lenders in the event of a default.

“The upgrade reflects our expectation for sustained improvement in total adjusted debt to EBITDA below 5x and funds from operations to total adjusted debt above 12% through 2016,” said S&P credit analyst Carissa Schreck in a news release.

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