CHICAGO— Fitch has affirmed the “BB-” rating on La Quinta Corp.s senior unsecured notes. At the same time, the rating on its preferred securities has also been affirmed at “B.” The ratings have been removed from Rating Watch Negative where they were placed on Sept. 18, 2001, following concerns related to the events of September 11th. The rating outlook is negative. The affirmation is based on La Quinta’s position in the mid-scale segment (without food and beverage) of the lodging market, which has been less impacted by the events of September 11th and the economic downturn. The chain has benefited from the “trade-down” effect, where business travelers who normally stay in full-service hotels choose lower-priced limited service hotels instead, said the report. In addition, approximately one-third of La Quinta’s hotels are located near main highways, which have been outperforming airport and urban locations, said Fitch While RevPAR during second-half 2001 is expected to be significantly lower compared to 2000 and negative RevPAR comparisons will likely continue into the first half of 2002, La Quinta’s lower operating leverage than full service hotels allows the company to better reduce costs, said Fitch. In addition, reported Fitch, La Quintas net leverage is solid relative to the rating category. In particular, net debt/EBITDA at Sept. 30, 2001, was approximately 3.2 times. The chain has significantly reduced debt through the sale of the companys healthcare assets and net debt has been reduced by approximately $1.6 billion to under $1 billion since Dec. 31, 1999. While Fitch expects net leverage to peak at or a little above four times during the first half of 2002, net leverage should begin to show gradual improvement during in the second half of 2002. La Quinta also completed its corporate restructuring transforming from a paired shared real estate investment trust (REIT) to a C-Corporation with a REIT subsidiary, allowing the more focused company to grow its lodging business. According to Fitch, the negative rating outlook reflects the continuing challenging lodging environment, which could result in lower-than-expected EBITDA. In addition, La Quinta’s bank agreement contains minimum lodging EBITDA and maximum leverage tests (among other covenants), which on a trailing 12-month basis, may need to be amended. Fitch also will focus on La Quinta’s use of cash flow, asset sale proceeds and its balance sheet as the company embarks on its growth initiatives. At Sept. 30, 2001, there were no borrowings under the chain’s $225 million revolver (excluding letters of credit) and cash was around $145 million. Debt maturing in 2002 is approximately $37 million in notes and $315 million in 2003, according to Fitch.
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