Press Release: Fitch
January 10, 2002
CHICAGO, IL -- Fitch has lowered the ratings on Starwood Hotels & Resorts Worldwide, Inc.'s (NYSE:HOT) debt.
The ratings have been removed from Rating Watch Negative where they were placed on Sept. 18, 2001 following the
events of September 11, 2001. The Rating Outlook is Negative.
Ratings lowered include:
Starwood Hotels & Resorts Worldwide Inc.:
Implied senior unsecured rating to BB+ from 'BBB-'; $1.1 billion revolving credit facility due 2003 to BB+ from BBB-; $800 million term loan due 2003 to BB+ from 'BBB-'; $423 million term loan due 2003 to BB+ from 'BBB-'; $500 million IRN facility due 2003 to BB+ from at 'BBB-'. ITT Corporation: $250 million 6.75% notes due 2002 to BB+ from 'BBB-'; $450 million 6.75% notes due 2005 to BB+ from 'BBB-'; $448 million 7.375% debentures due 2015 to BB+ from 'BBB-'; $148 million 7.75% debentures due 2025 to BB+ from 'BBB-'.
The downgrade reflects the reduced cash flow generated by HOT as a result of the slowing economy and the events
of September 11th, which will result in weakened credit profile. In addition, HOT's cash flow visibility to total
debt, which has deteriorated, is expected to remain at levels more appropriate for the rating category.
While revenue per available room (RevPAR) trends have shown meaningful improvement since Sept. 11, business travel
(nearly 90% of HOT'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 refinancing risk due to approximately
$2.7 billion (nearly half of total debt) maturing in early 2003.
HOT derives more than 70% of its EBITDA from owned hotels and has a large exposure to the upper scale segment of
the market. The high degree of operating leverage associated with owned hotels could mean RevPAR declines will
be difficult to offset, resulting in margin pressure. In addition, HOT's top ten major metropolitan area hotels,
generate a little under one-quarter of EBITDA. Due to the decline in business travel, upper scale and major metropolitan
area hotels have experienced significantly greater RevPAR declines than the national average, declines which Fitch
expects will recover slowly in 2002, even with a gradual economic recovery.
Fitch expects leverage will increase to greater than 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, but remain below levels appropriate for investment
grade rating category.
HOT has 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). HOT also has the ability to lower capital spending,
reduce its dividend to augment liquidity and sell a portion of its CIGA assets if market conditions improve. At
Dec. 31, 2001, revolver availability was $395 million and will increase to $550 following the draw down on a portion
of HOT's euro loan.
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Contact:
Fitch
Marcy C. Odlaug, 312/606-2338, (Chicago)
Eric C. Stephenson, CFA 212/908-0859 (New York)