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Moody's may downgrade Hilton
Moody's Investors Service said it placed Hilton Hotels Corp.'s ratings on review for possible downgrade, including the Prime-3 commercial paper rating, Baa3 senior unsecured notes and Baa3 senior unsecured shelf, Ba1 subordinated shelf and Ba2 preferred debt shelf ratings.
The rating action was prompted by the company's announcement that it will acquire the Hilton International lodging assets of Hilton Group plc for $5.71 billion in an all-cash transaction. The transaction is expected to close in the first quarter of 2006 and will likely be financed with cash on hand and new bank facilities.
Moody's said its review will focus on key rating factors for lodging companies including market position, diversification, profitability, cash flow, leverage, financial policy and liquidity. Hilton will improve its ranking on several of these factors, particularly market position and diversification.
However, the agency predicted that pro-forma leverage (debt, adjusted for operating leases, to EBITDA) will increase to above 5x, which Moody's described as outside the appropriate range for the current rating. Thus, a key rating consideration will be the company's ability to reduce debt within a reasonable time frame.
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