Moody’s ups Hilton Worldwide, loans

Moody's Investors Service said it upgraded Hilton Worldwide Finance, LLC’s corporate family rating to Ba2 from Ba3, probability of default rating to Ba2-PD from Ba3-PD and senior secured bank credit facilities to Ba1, LGD 3 from Ba2, LGD 3.

At the same time, the agency affirmed the speculative grade liquidity rating at SGL-1.

The outlook is stable. This action concludes the review for upgrade initiated on Feb. 26.

Moody’s said the upgrade reflects the substantial progress Hilton has made in reducing leverage by repaying debt and growing EBITDA. For the 12 months ended March 31, 2016, debt to EBITDA has fallen to 4.2 times from 5.1 times at fiscal 2014. EBITA to interest expense also improved to 3.6 times from 2.9 times.

The pending spin-offs of the real estate and timeshare businesses will weaken Hilton's leverage. Assuming that the securitized debt will go with the newly formed timeshare company and that the CMBS debt and mortgage debt will go into the newly formed REIT, Moody's estimates that pro forma for the spin-offs debt to EBITDA will increase to between 4.75 times and 5.2 times (as adjusted by Moody's for operating leases).

However, the upgrade acknowledges that the increase in debt to EBITDA will only be temporary. The agency estimates that debt to EBITDA will approach 4.5 times within the next 12 to 18 months.

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