New York, April 16, 2020 -- Moody's Investors Service ("Moody's") confirmed
Hilton Worldwide Finance, LLC's (together with Hilton Domestic
Operating Company Inc. and Hilton Escrow Issuer LLC, "Hilton")
ratings, including its Ba1 Corporate Family Rating, Ba1-PD
Probability of Default Rating, Baa3 senior secured rating,
and Ba2 senior unsecured rating. The company's Speculative Grade
Liquidity Rating of SGL-1 is unchanged. At the same time,
Moody's assigned a Ba2 rating to the planned $500 million
senior unsecured note issuance of Hilton Domestic Operating Company Inc.
The outlook on Hilton Worldwide Finance, LLC is negative.
This concludes the review for downgrade that was initiated on March 23,
2020.
"The confirmation reflects Hilton's improved liquidity position
as the company faces material earnings decline and pressure on its free
cash flow in 2020 due to global travel restrictions related to the spread
of the coronavirus (COVID-19)," stated Pete Trombetta,
Moody's lodging and cruise analyst. "The $1.0
billion of proceeds from Hilton's pre-sale of Hilton Honor
points to American Express, the approximate $1.5 billion
drawdown on its revolving credit facility, and the planned $500
million note issuance provides the company with sufficient liquidity to
absorb the material cash burn Moody's forecasts the company will
face in 2020," added Trombetta.
Assignments:
..Issuer: Hilton Domestic Operating Company Inc.
....Senior Unsecured Regular Bond/Debenture,
Assigned Ba2 (LGD4)
Confirmations:
..Issuer: Hilton Domestic Operating Company Inc.
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba2 (LGD4 from LGD5)
..Issuer: Hilton Escrow Issuer LLC
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba2 (LGD4 from LGD5)
..Issuer: Hilton Worldwide Finance, LLC
.... Probability of Default Rating,
Confirmed at Ba1-PD
.... Corporate Family Rating, Confirmed
at Ba1
....Senior Secured Bank Credit Facility,
Confirmed at Baa3 (LGD2)
....Senior Unsecured Regular Bond/Debenture,
Confirmed at Ba2 (LGD4 from LGD5)
Outlook Actions:
..Issuer: Hilton Worldwide Finance, LLC
....Outlook, Changed To Negative From
Rating Under Review
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, falling oil prices, and asset price
declines are creating a severe and extensive credit shock across many
sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The lodging sector has
been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
the weaknesses in Hilton's credit profile, including its exposure
to increased travel restrictions for US citizens which represents a majority
of the company's revenue and earnings have left it vulnerable to shifts
in market sentiment in these unprecedented operating conditions and the
company remains vulnerable to the outbreak continuing to spread.
We regard the coronavirus outbreak as a social risk under our ESG framework,
given the substantial implications for public health and safety.
Today's action reflects Hilton's ability to bolster its liquidity in the
face of such unprecedented disruption.
Hilton's credit profile derives support from its large scale --
with 971,780 rooms Hilton is the second largest rated hotel company,
only behind Marriott -- its well-recognized brands
and good diversification by geography and industry segment. Hilton's
hotels are located in 119 countries and territories across the world.
Hilton's credit profile also benefits from its very good liquidity profile
which, under normal circumstances, includes strong free cash
flow and a $1.75 billion revolving credit facility.
In March 2020 Hilton drew down its revolver in full to have additional
cash on hand during this period of unprecedented operating pressure and
financial volatility. Following the revolver draw, the proceeds
of the aforementioned honor points pre-sale, and the planned
note issuance, we estimate that Hilton has about $3.0
billion of cash on hand. In the short run, Hilton's credit
profile will be dominated by the length of time that the lodging industry
continues to be highly disrupted and the resulting impacts on the company's
cash consumption and its liquidity profile. The normal ongoing
credit risks include its historically high leverage relative to other
Ba1 rated companies and our expectation that its debt/EBITDA will not
return to below its 4.5x downgrade factor until at least the end
of 2022.
The negative outlook reflects our expectation that global travel restrictions
related to the spread of the coronavirus will put significant pressure
on Hilton's earnings in 2020, with revenue per available room
(RevPAR) declines of as much as 90% in the second quarter of 2020.
Our base case assumes modest improvement in the second half of 2020 and
into 2021, resulting in leverage of about 6.0x to 6.5x
at the end of 2021 with additional improvement to less than 5.0x
by the end of 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a downgrade include the continuation of depressed
occupancy and RevPAR through the second half of 2020 beyond our base case
assumption or updated expectations for a weaker recovery, resulting
in debt/EBITDA remaining above 6.25x at the end of 2021 or an expectation
that debt/EBITDA will remain above 4.5x over the longer term.
The outlook could be revised to stable if there are signs of improving
travel trends, including business travel, into 2021 leading
to an expectation that the company's finances will stabilize in the near
term and that debt/EBITDA will improve to below 4.5x over the medium
term. An upgrade could come if travel demand returns to near prior
levels and debt/EBITDA improved to a level approaching 3.5x.
Hilton Worldwide Holdings Inc. is a leading hospitality company
with 5,685 managed, franchised, owned and leased hotels,
resorts and timeshare properties comprising about 972,000 rooms
in 119 countries and territories around the world. 2019 net revenues
were $3.7 billion.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
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.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
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if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
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These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
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.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Peter Trombetta
Asst Vice President - 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
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
