Press Release: Fitch Ratings
April 9, 2002
CHICAGO, IL -- Fitch Ratings has assigned a 'BB+' rating to Starwood Hotels & Resorts Worldwide, Inc.'s (NYSE:HOT)
proposed $1.0 billion in senior notes issued under Rule 144A. The proposed senior notes will be issued in two tranches,
five-year senior notes due 2007 and 10-year senior notes due 2012. The proceeds from the issuance will be used
to repay $500 million in Increasing Rate Notes (IRNs) and a portion of HOT's senior credit facility. Revolver availability
at Dec. 31, 2001, was approximately $440 million. The Rating Outlook is Negative.
The following ratings have been affirmed:
Starwood Hotels & Resorts Worldwide Inc.:
ITT Corporation:
The ratings reflects HOT's strong brand names, ownership of key assets in markets with high barriers to entry,
and global diversity of cash flows, largely derived in Europe and Latin America. Offsetting factors include the
approximately $1.3 billion in bank debt (pro forma for the issuance) and $250 million in notes maturing in 2003.
The new debt issuance addresses in part these pending maturities and HOT's bank refinancing is expected to occur
over the upcoming months.
While revenue per available room has shown meaningful improvement since the lows experienced following the events
of September 11, the first quarter 2002 remained challenging in the lodging industry. In particular, according
to Smith Travel Research, RevPAR nationwide decreased 23.4% in September 2001 compared to September 2000, but has
improved to an estimated decline of 8%-10% in March versus the same month last year. However, the upscale segment
of the market and properties located in major urban areas, which HOT is dependent upon, have experienced greater
declines than the national average. In addition, HOT derives nearly 80% of its EBITDA from owned, leased or joint
venture hotels. The high degree of operating leverage associated with owned hotels makes RevPAR declines difficult
to offset.
At Dec. 31, 2001, leverage as measured by debt/EBITDA increased to approximately 4.5 times (x) compared to around
3.6x at Dec. 31, 2000. The increase in leverage is primarily a result of an approximately 20% decline in EBITDA
as the events of September 11 caused a severe decline in both business and leisure travel. Debt levels increased
slightly to $5.6 billion at Dec. 31, 2001 from the third quarter 2001 and are expected to increase only a bit at
the end of the first quarter 2002. Fitch expects HOT's credit profile to improve in the second half of 2002 as
comparisons become easier and assuming an improving economy leads to a rebound in travel. HOT is also in the process
of marketing its CIGA assets for sale and Fitch expects asset divestiture proceeds would be directed towards debt
reduction.
Following planned capital expenditures of $300 million (which was reduced from $477 million in 2001), HOT expects
discretionary cash flow to approximate $500 million during 2002. Application of excess cash to debt reduction,
a continued improvement in the operating environment and the successful refinancing of HOT's bank credit agreement
could lead to a Stable Rating Outlook in the near term.
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Contact:
Fitch Ratings
Marcy C. Odlaug, 312/606-2338 (Chicago)
Mark Oline, 312/368-2073 (Chicago)
James Jockle, 212/908-0547 (Media Relations/New York)