Fitch downgrades Hilton Hotels, rates loan BB

Fitch Ratings said it downgraded Hilton Hotels Corp.'s issuer default rating to BB from BBB- and senior unsecured debt rating to BB from BBB- upon completion of its acquisition of Hilton plc. Fitch also assigned a BB rating to the $5.75 billion senior secured credit facility and removed the ratings from Rating Watch negative, where they were placed on Dec. 29. The outlook is stable.

Fitch said these actions reflect Hilton's significantly levered balance sheet subsequent to the completion of its $6 billion acquisition of Hilton plc, which was funded with $1.2 billion of cash, $4.6 billion of bank debt and $130 million of assumed Hilton plc debt.

Additionally, the agency said it believes pro forma lease payments could approach $500 million, up from $57 million in 2004, due to the significant number of leased rooms (43,000) being acquired from Hilton plc. As a result of the debt funded transaction and the assumed increase in annual lease expense, Fitch predicted that Hilton's pro forma adjusted debt number will exceed $12 billion.

The ratings are supported by Hilton's superior and diversified asset base, its improved cash flow generating capabilities and the favorable lodging industry outlook, the agency said.

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