NEW YORK - (Business Wire) Fitch Ratings has affirmed Marriott International's (Marriott) credit ratings as follows:
--Issuer Default Rating (IDR) at 'BBB';
--$2.5 billion senior unsecured bank credit facility at 'BBB';
--$1.9 billion senior unsecured notes at 'BBB';
--$1.2 billion short-term/commercial paper at 'F2';
The Rating Outlook is Stable.
Marriott's IDR is supported by its diversified portfolio of leading hotel and timeshare brands, its flexible capital allocation strategy, the stability of its management/franchise fee business, and a continued stable near-term industrywide supply outlook that is likely to continue to be constrained given current credit market conditions.
Primary credit concerns include the potential impact to demand from a deeper and more prolonged recession than currently anticipated, the company's sizable share repurchase program that is being partially funded by increased debt, and Marriott's significant level of off-balance-sheet (OBS) obligations and contingent commitments that could potentially increase as a result of the credit market disruption.
The IDR and Stable Outlook incorporate the company's strategy of managing its capital allocation within the Marriott-adjusted leverage target of 3.0 times (x)-3.25x, or slightly higher on a Fitch-adjusted basis (it was at the low-end of this range at the end of Q1'08.) Also incorporated is the expectation of a continued weak economic outlook that could continue to pressure revenue per available room (RevPAR) growth, which has been moderating. Marriott's 2008 RevPAR growth expectation (on a worldwide systemwide comparable basis) is currently 3%-5%, which is down from its initial 2008 expectation of 5%-7% growth noted in October 2007. Worldwide systemwide comparable RevPAR growth was 7.6% in 2007 and 9.5% in 2006. Although domestic demand is being impacted by the slowing U.S. economy, group business trends remain solid and the company will benefit from its international exposure (roughly 20% of profits) given the weak U.S. dollar and stronger international demand.
Due to $208 million of share repurchases funded by additional commercial paper issuance of $571 million in Q1'08, Marriot's on-balance sheet debt increased to $3.40 billion as of Q1'08 from $2.97 billion as of year-end 2007. Due primarily to weaker timeshare performance that was impacted by revenue recognition timing, Fitch-adjusted LTM EBITDA declined slightly in Q1'08 to $1.4 billion. Therefore, Fitch calculates LTM on-balance sheet debt/EBITDA leverage of 2.5x, while LTM EBITDA/gross interest expense coverage was 5.6x. The credit metrics are in-line with the rating category, but deteriorating largely as a result of Marriott's share repurchase program. In addition, Marriott has a significant amount of contingent commitments and off-balance sheet (OBS) obligations, which is incorporated into Fitch's analysis.
Given the current credit market environment, Fitch believes there is risk that Marriott could increase its participation in the funding of projects in order to support its development pipeline, which could increase the company's contingent commitments. The company can participate through loan commitments or guarantees, sliver equity investments, or mezzanine debt financing. Marriott has 130,000 rooms in its pipeline (rooms under construction, awaiting conversion, or approved for development) as of Q1'08, which is up from 125,000 at year-end 2007 and 100,000 at year-end 2006. MAR expects roughly 30,000 rooms to open in 2008 and roughly 55% of the pipeline is currently under construction.
Liquidity remains solid, but diminished somewhat in Q1'08. Marriott had $1.55 billion of liquidity available at the end of Q1'08, which is down from $2.15 billion at year-end 2007 due to increased credit facility-backed commercial paper issuance, which Fitch believes Marriott will look to term out opportunistically. Marriott generates a secondary source of liquidity through the securitization of timeshare receivables. Due to significant market pressure, Marriott has not sold any timeshare receivables since October 30, 2007, but still expects to sell roughly $550 million-$600 million this year albeit at less attractive pricing. Wyndham Worldwide recently priced a $200 million timeshare securitization on April 25, which bodes well for Marriott.
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Fitch Ratings
Michael Paladino, CFA, +1-212-908-9113, New York
William Warlick, +1-312-368-3141, Chicago
Media Relations:
Brian Bertsch, +1-212-908-0549, New York
