Moody's may upgrade Accor

Moody's Investors Service said placed the Not Prime short-term rating of Accor SA on review for possible upgrade to reflect Accor's improved operating performance, with strong growth in revenue per available room and gradually improving operating margins; the agency's expectation that the operating environment in Europe will remain benign throughout 2007; the company's initiatives to refocus its portfolio through the disposal of non-core hotel assets and through sale, managed-back and sale and variable lease-back agreements; and the company's improved credit metrics, with the gross debt-to-EBITDA ratio at 4.5x.

The agency said Accor's position as Europe's largest hotel chain, its eight key hotel brands and its reasonable geographic diversification are positive factors for the rating and its presence in the upscale, midscale and economy/budget segment of the hotel business and the profitable service voucher business provide additional diversification.

More cautiously, Moody's noted the significant shareholder returns planned for 2007, with a buyback program of €700 million and a special dividend of €320 million, which will constrain deleveraging over the intermediate term. Additionally, the hotel business remains relatively cyclical and is exposed to exogenous shocks such as pandemic diseases and terrorism.

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