Fitch Cuts Six Continents Plc Senior Unsecured Debt

NEW YORK— International rating agency, Fitch Ratings, has downgraded the senior unsecured debt and short-term ratings of Six Continents Plc to BBB+ from A and to F2 from F1 respectively. The ratings have been placed on Rating Watch Negative, according to a Reuters report. The move action follows confirmation that the company is proposing a separation of its Hotels and Retail divisions. The process is expected to be completed after March 2003. The Rating Watch Negative placement is likely to be resolved when the proposed demerger is finalized, according to the report. Fitchs previous Negative Outlook reflected uncertainty concerning Six Continents likely capital structure. Following speculation as to what Six Continents would do with its surplus capital, management has decided to demerge two distinct operations, the Hotels (top-end and mid-scale with strong brands) and Retail (themed pubs and outlets) activities. After required capex for the Hotels division, and the outlined return of capital to shareholders, the separate operations are expected to have higher leverage than at present. Fitchs downgrade of the group is an indication to bondholders of the likely rating category of the two new entities, given the details outlined to date, said the report. The company has announced that it will be discussing with bondholders “the position of the bonds going forward” and thus it is not possible to discern if bondholders will be asked to migrate their debt to particular operations or if bonds will be subject to early repayment. Looking at the Hotels business, the BBB rating category reflects the reduced diversification of Six Continents operations going forward. The Hotels operation is also more exposed to the “particularly difficult U.S. market than its European competitors as 60% of the divisions operating profit is derived from there,” it was reported. SOURCE: Reuters