Press Release: Fitch
January 10, 2002
CHICAGO, IL -- Fitch has lowered the rating on Hilton Hotel Corporation's (NYSE:HLT) senior unsecured notes and
debentures to BB+ from BBB-. In addition, the rating on HLT's senior subordinated notes has been lowered to BB-
from BB+ and commercial paper to B from F3. The ratings have been removed from Rating Watch Negative, where they
were placed on September 18, 2001. The Rating Outlook is Negative.
The downgrade reflects the reduced cash flow generated by HLT as a result of the slowing economy, the events of
Sept. 11 and high leverage for the rating category. In addition, cash flow visibility to total debt has been weak
for the rating category and Fitch expects this trend to continue. While revenue per available room (RevPAR) trends
have shown meaningful improvement since Sept. 11th, business travel (nearly two-thirds of HLT's business) has been
dramatically reduced, leading to a significant decline in both occupancy and room rates that could extend throughout
much of 2002. The Negative Rating Outlook reflects the possibility that results could be weaker than expected due
to a prolonged recession and the current negative operating environment.
HLT derives a majority of its EBITDA from hotels in the upper scale segment of the market, with more than one-third
coming from its top ten hotels located in major metropolitan cities. Declines in business travel have resulted
in upper scale and major metropolitan area hotels having significantly greater RevPAR declines than the national
average. Even with a gradual economic recovery, Fitch expects RevPAR will recover slowly, lagging behind economic
improvement, with HLT only being able to absorb a portion of the costs due to high operating leverage.
Fitch expects leverage will increase above 5.0 times and interest coverage will decline below 3.0 times on a trailing
twelve month basis during the first half of 2002. However, as comparisons become easier during the second half
of 2002, credit statistics should show improvement, toward levels more appropriate for the rating category.
HLT has superior asset breadth in its domestic lodging business. In addition, HLT has well-known brand names, which
are enhanced by its customer loyalty programs, strong hotel reservation system and good geographic distribution.
HLT has also successfully integrated the 1999 Promus acquisitions, realizing greater than expected synergies, and
has improved brands through cross selling initiatives. Moreover, HLT has been growing its franchising business,
providing a more stable fee income.
At Dec. 31, 2001, revolver availability was $755 million. Debt maturing in 2002 is $335 million (excluding Park
Place Entertainment debt) and $402 million in 2003, which includes $390 million under the Hilton Hawaiian Village
facility.
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Contact:
Fitch
Marcy C. Odlaug, 312/606-2338 (Chicago)
Eric C. Stephenson, CFA, 212/908-0859 (New York)