New York, May 17, 2022 -- Moody's Investors Service ("Moody's") today changed the outlook of Hilton Domestic Operating Company Inc. (combined herein with Hilton Worldwide Holdings Inc. as "Hilton") to stable from negative. At the same time, Moody's affirmed its corporate family rating at Ba1, probability of default rating at Ba1-PD, senior secured credit facility at Baa3 and senior unsecured rating at Ba2. The company's speculative grade liquidity rating of SGL-1 remains unchanged.
"The revision of Hilton's outlook to stable reflects the improved operating environment. In the first quarter of 2022 Hilton's revenue per available room ("RevPAR") improved to within 17% of 2019 – which Moody's forecasts will enable that the company to achieve debt/EBITDA at around its downgrade factor of 4.5x at the end of 2022," stated Pete Trombetta, Moody's lodging analyst. Despite the near term impacts from the Omicron variant in early 2022, Hilton's EBITDA in the first quarter of 2022 improved to 90% of 2019. Leisure travel continues to drive the stronger EBITDA results with business travel lagging, but improving through the early months of 2022. Moody's forecasts that continued pricing strength for leisure travel this summer with increasing occupancy levels and a gradual ramp up in group and large corporate business travel throughout the year will improve Hilton's debt/EBITDA(as adjusted by Moody's) to about 4.5x at the end of 2022 from 5.6x for the 12 months ended March 31, 2022.
Affirmations:
..Issuer: Hilton Domestic Operating Company Inc.
.... Corporate Family Rating, Affirmed Ba1
.... Probability of Default Rating, Affirmed Ba1-PD
.... Gtd Senior Secured Term Loan, Affirmed Baa3 (LGD2)
.... Gtd Senior Secured Revolving Credit Facility, Affirmed Baa3 (LGD2)
.... Gtd Senior Unsecured Global Notes, Affirmed Ba2 to (LGD4) from (LGD5)
Outlook Actions:
..Issuer: Hilton Domestic Operating Company Inc.
....Outlook, Changed To Stable From Negative
RATINGS RATIONALE
Hilton's corporate family rating reflects its large scale. With just over 1,080,000 rooms Hilton is the second largest rated hotel company after Marriott. Hilton's credit profile is also supported by its well-recognized brands, good diversification by geography and industry segment and its high level of franchise/management agreements that help the company maintain financial flexibility in normal economic downturns. The normal ongoing credit risks include its historically high leverage relative to other Ba1 rated companies and our expectation that the company will use its free cash flow for shareholder returns as opposed to absolute debt repayment.
Hilton's liquidity is good and reflects its solid cash balances at March 31, 2022 of $1.5 billion and full availability under its $1.75 billion committed revolver. The company is subject to a financial maintenance covenant – consolidated secured net leverage ratio (as defined) of less than 5.0x, which had ample cushion at March 31, 2022. The company has no scheduled debt maturities until its revolver expires in 2024. Hilton's management stated its intentions to return between $1.4 billion and $1.8 billion to shareholders in 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade could come if travel demand returns to near prior levels, debt/EBITDA improved to 3.5x and financial policy supported leverage remaining at that level. Ratings could be downgraded if the company's financial strategy becomes more aggressive resulting in debt/EBITDA remaining above 4.5x or EBITA/interest expense below 3.5x.
Hilton Worldwide Holdings Inc., the ultimate parent company of Hilton Domestic Operating Company Inc., is a leading hospitality company with 6,982 managed, franchised, owned and leased hotels, resorts and timeshare properties comprising about 1,080,000 rooms. Net revenues for 2021 were about $2.4 billion.
The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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Peter Trombetta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
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JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
