Moody's rates Equity Inns notes B1

Moody's Investors Service said it assigned a B1 rating to the $65 million of senior unsecured debt of Equity Inns Inc. now being issued. The outlook for Equity Inns is stable.

This is the first time Equity Inns has issued senior unsecured debt, a step with positive credit implications given that unsecured borrowing promotes greater flexibility in the capital structure than does secured debt, the REIT's traditional debt financing source, Moody's said.

Moody's indicated, however, that the structure underlying the unsecured debt is not typical for REITs as the debt is being issued at the REIT parent level and not at the operating partnership level and does not benefit from a guarantee from the operating partnership. This structure creates structural subordination that could be exacerbated in the event of financial distress at the firm.

To mitigate this structural subordination, Equity Inns Inc. will lend the proceeds from the debt to its operating partnership, Equity Inns Partnership LP, in exchange for a promissory note with terms identical to the senior unsecured issue.

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