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Moody's lowers Hilton Hotels to junk, rates loan Ba2
Moody's Investors Service said it downgraded the ratings of Hilton Hotels Corp. (HHC) from Baa3 to Ba2 reflecting higher lease adjusted leverage and lower interest coverage once HHC's planned acquisition of the lodging assets of Hilton Group plc closes and a reliance on asset sales to reduce absolute debt levels.
The key contributing factors to the two notch downgrade is the difficulty of predicting the timing of the disposition program, as well as the high pro-forma leverage for the new rating category, the agency said.
Moody's said it assigned HHC a Ba2 rating to its proposed $5.5 billion bank facilities that are expected to be comprised of a $2.75 billion five-year revolver, an about $2 billion five-year term loan and a $750 million seven-year term loan.
The rating outlook is stable, reflecting lower than usual integration risk for a transaction of this size given that the two companies have been closely linked through various joint ventures, strong demand for hotel assets from third parties that should enable HHC to execute asset sales at reasonable multiples, positive travel demand and limited supply growth that bodes well for continued rate driven RevPAR growth in 2006, Moody's said.
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