Moody's rates Interstate Hotels

Moody's Investors Service said it assigned a B2 senior implied rating to Interstate Hotels & Resorts Inc. and its consolidated subsidiaries.

The B2 ratings previously assigned to the firm's five-year $75 million secured term loan and to the three-year $60 million revolver of Interstate Operating Co. LP, a subsidiary of Interstate Hotels & Resorts Inc., are unaffected.

The outlook is stable.

Moody's said the B2 senior implied reflects Interstate's modest scale in the hotel management business relative to major hotel brand managers, such as Marriott International, Starwood and Hilton, moderately high financial leverage and expected low recovery value, in the case of distress, as well as execution risks associated with its expanded investment strategy to invest in hotel properties.

These weaknesses are balanced by Interstate's healthy cash flow coverage measures, low operating leverage, established and solid operating platform, relatively stable management contract cash flows (which are less volatile than the underlying hotel cash flows), ability to manage through the recent severe lodging downcycle, and good diversification by geography, hotel segment and brand affiliation.

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