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Published on 5/2/2006 in the Prospect News Bank Loan Daily, Prospect News Convertibles Daily, Prospect News Distressed Debt Daily and Prospect News High Yield Daily.

Moody's downgrades MeriStar

Moody's Investors Service said it lowered the senior unsecured ratings on MeriStar Hospitality Operating Partnership LP's notes to B3 from B2 and confirmed MeriStar Hospitality Corp.'s Caa1 senior subordinated debt rating followed MeriStar acquisition by affiliates of The Blackstone Group, an investment and advisory firm. The outlook is stable.

The agency said the lower ratings reflect significant use of secured debt and the considerably diminished claim of the unsecured debt holders in the new capital structure. In addition, unencumbered assets are practically non-existent. As a result of the tender and consent offer, most restrictive covenants pertaining to the notes have been removed (though the notes did not benefit from standard REIT covenants).

Furthermore, given that MeriStar has been acquired by and merged into entities controlled by the private entity, Blackstone, Moody's said it anticipates considerably less transparency with respect to the financial and operational aspects of the firm.


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