Sunburst Hospitality Wrangles Debt Down; Eyes Growth

SILVER SPRING, MD— Following a concentrated effort to pay down debt, Sunburst Hospitality Corp. is looking ahead to greater growth backed by a stronger balance sheet. By selling off non-strategic assets combined with strong operating cash flow, Sunburst has cut its bank credit facility by close to half, dropping from $280 million to $170 million, including an unused $20 million revolving line of credit. The debt, incurred in January 2001, originally funded management’s $370 million leveraged buyout of the company. “We worked pretty hard selling properties,” Sunburst President/CEO Jim MacCutcheon told HOTEL BUSINESS® “It’s a lot of work to get all that legal work done, the paperwork done, and all the negotiating done, and then to internally reorganize the company, to recognize it was a smaller, but much more consistent portfolio.” MacCutcheon added the debt reduction will provide the company with a strong balance sheet and “will allow us to pursue judicious growth opportunities as we move ahead.” Further cost efficiencies will stem from amending the bank credit facility to lower the average interest rate by almost two percentage points, while extending its term one year to December 31, 2006. Participating financial institutions in the credit facility, led by JP Morgan, include SunTrust Bank, as the documentation agent and Fleet National Bank as the syndication agent. The paydown had been a key strategy for the company since the leveraged buyout, and now “We’d like to find some good acquisition opportunities. We haven’t really seen much yet,” MacCutcheon said, adding, “Actually, where we saw opportunity was in our own stock two years ago, since we bought the company at a very attractive cap rate and financed that by selling hotels at a much lower cap rate.” The West Coast, Northeast and South Florida are on Sunburst’s radar screen, although the current economic climate has tamped aggressive pursuit of new construction. “We’re reluctant to start developing again until we start to see RevPAR come up, and quite frankly, in spite of all this, we haven’t seen a decline in land costs or construction costs,” said MacCutcheon. “There has to be a better economic model to want to be developing again.”