Moody's rates Hilton convertible Baa2

Moody's Investors Service rated Hilton Group Finance (Jersey) Ltd.'s new £300 million convertible bonds due 2010 at Baa2 with a negative outlook. The issue is fully guaranteed by Hilton Group plc, whose outlook Moody's changed to negative on March 27.

The current ratings of Hilton remain under negative pressure due to the weak underlying operating performance of the hotel business, which could constrain strengthening debt protection ratios to levels commensurate with the current rating, Moody's said.

Moody's said that the negative rating outlook reflects the current difficult trading environment due to geopolitical risk and economic slowdown in Europe, which may continue to affect Hilton's operating cash flow.

While Hilton has a strong underlying asset base supported by a well diversified business model, the challenging outlook for the hotel sector in the U.K. and Continental Europe this year makes Moody's expect the need to ensure that debt protection measures improve over the medium-term to maintain ratings.

From a liquidity risk analysis perspective, Hilton has had a strong focus on maintaining significant surplus liquidity with no financial ratio covenants, rating triggers or material adverse change clauses.

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