NEW YORK— Fitch Ratings has assigned a rating of ‘BB+ to the $1.3 billion bank facility for Starwood Hotels & Resorts Worldwide, Inc., while the rating outlook remains Negative. According to a Reuters report, Fitchs ratings reflect Starwoods strong brand names, although like the rest of the U.S. lodging industry, has faced a dramatic decline in RevPAR, room rates and occupancy in weak economic conditions and the wake of 9/11. Despite these difficult conditions, Starwood has responded by reducing costs and cutting capital expenditures, allowing it to retain credit statistics consistent with the current rating, and without the benefit of asset sales, noted the report. Leverage remains relatively high for the rating category, however, and debt reduction from excess cash flow will remain moderate over the near-term, according to the report. Cash flow, although reduced, has remained flat-to-slightly down, and Starwood has been able to avoid balance-sheet deterioration over the past year. Starwood forecasts RevPAR to be down approximately 6% for the year after falling 13% in the first half of this year. Industrywide RevPAR (as of mid-August) is currently running down 3%-4% when compared with the same week in 2001, with particular softness in the urban and upper-upscale segments (down 5.3%) where Starwood has concentrations of product. Over the medium-term, Fitch expects the current low level of new room supply to bode well for industry pricing. Current cost cutting efforts should translate into improved margins as conditions recover, said the report. Debt levels have remained stable and stand at $5.497 billion at June 30, and are expected to fall by year-end as a result of the recently announced sale of part of Starwoods CIGA portfolio of luxury hotels in Sardinia, Italy. In July 2002, Starwood announced the sale to a consortium of Italian investors for approximately $347 million, subject to regulatory approvals and final adjustments. Starwood retains the long-term management contracts for the hotels and will participate in future developments. The company projects further debt reduction in 2003 as additional CIGA assets are disposed and free cash flow is dedicated to debt reduction. Debt maturities have been a significant factor in the rating, with a heavy maturity schedule going into 2002. The concerns have been reduced through the April 2002 $1.5 billion bond issue and the recently completed refinancing of its bank debt. After completion of the bank refinancing, Starwood still has $847 million in maturities in 2003, which amount includes $250 million of public debt at Sheraton Holdings and an 18-month $450 million loan at Starwood Hotels Italia, each due in the fourth-quarter 2003. Fitch expects that cash proceeds from asset sales will be used to reduce debt, said the report, and expects in the event of a further modest deterioration in the economic environment and Starwoods results, the company has sufficient room to remain cash-flow positive and to avoid any deterioration in its capital structure until a recovery occurs. Application of excess cash to debt reduction and a stable operating environment could lead to a Stable Rating Outlook in the near term. SOURCE: Reuters
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