New York, March 23, 2020 -- Moody's Investors Service (Moody's) downgraded the ratings
of Aimbridge Hospitality Holdings, LLC (Aimbridge) including its
Corporate Family Rating to B3 from B2, its Probability of Default
Rating to B3-PD from B2-PD and its senior secured bank facility
rating to B2 from B1. The outlook has been revised to negative
from stable.
"The downgrade reflects the material earnings decline Aimbridge
will experience in 2020 due to travel restrictions being put in place
across the US related to the spread of the COVID-19 coronavirus
which will cause the company's leverage to increase to well above
its downgrade trigger of 6.0x," stated Pete Trombetta,
Moody's lodging and cruise analyst. "Occupancy and
revenue per available room (RevPAR) trends in the US fell significantly
over the past two weeks and will continue to fall to historic lows as
the number of confirmed COVID-19 cases increases in the US over
the coming weeks which will cause a prolonged recovery for Aimbridge,"
added Trombetta. With about $115 million of cash on hand,
after drawing its revolver in full, Aimbridge is able to cover its
debt service requirements and maintenance capital expenditure needs for
almost two years.
Downgrades:
..Issuer: Aimbridge Hospitality Holdings, LLC
.... Probability of Default Rating,
Downgraded to B3-PD from B2-PD
.... Corporate Family Rating, Downgraded
to B3 from B2
....Senior Secured Bank Credit Facility,
Downgraded to B2 (LGD3) from B1 (LGD3)
Outlook Actions:
..Issuer: Aimbridge Hospitality Holdings, LLC
....Outlook, Changed To Negative From
Stable
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 Aimbridge'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 the impact on Aimbridge of the breadth and
severity of the shock, and the broad deterioration in credit quality
it has triggered.
Aimbridge's B3 credit profile is constrained by its high debt/EBITDA which
will exceed its downgrade factor of 6.0x at the end of 2020 given
the material decline in earnings expected due to travel restrictions related
to the spread of COVID-19 (all metrics include Moody's standard
adjustments). The company's debt load was higher at the end
of the year following its 2019 acquisition of Interstate Hotels &
Resorts for approximately $800 million, including $500
million of debt. This amount of leverage is considered high given
Aimbridge's small scale in terms of revenue and earnings relative
to other single B rated Business and Consumer Services companies.
Aimbridge's credit profile reflects Moody's expectation that
Aimbridge will successfully integrate the Interstate Hotels & Resorts
acquisition further solidifying its position as the largest third-party
hotel management company. Aimbridge's credit profile also benefits
from its good diversification in terms of geography, brands,
and hotel owners. The acquisition of Interstate will further improve
the company's scale in terms of number of managed properties (to
about 1,315 properties from about 830) and almost doubles Aimbridge's
absolute level of EBITDA. Under normal conditions the combined
company will benefit from strong free cash flow due in part to its minimal
capital expenditure requirements.
The negative outlook reflects Moody's expectation that Aimbridge's earnings
will deteriorate materially over the next six months potentially leading
to covenant concerns if travel restrictions lead to historically low occupancy
levels for an extended period of time.
Aimbridge's ratings could be downgraded if debt/EBITDA does not recover
to below 6.5x, if EBITA/interest expense is not sustained
above 1.0x or if the probability a default increases for any reason.
Any deterioration in liquidity would also lead to negative ratings pressure.
The outlook could return to stable if earnings declines stabilize and
covenant concerns lessen. Although not likely in the near term,
ratings could be upgraded if Aimbridge's debt/EBITDA and EBITA/interest
expense approached 5.5x and 2.5x, respectively.
Aimbridge Acquisition Co., Inc., through its
subsidiaries Aimbridge Hospitality Holdings, LLC and KIHR Holdings
Inc., is the largest third-party hotel operator,
with over 1,300 properties and approximately 185,000 rooms
under management. Aimbridge's managed properties are located
in 49 states and 20 countries. The company is majority owned by
Advent International. The company is private and does not file
public financials. Pro forma for a full year of the Interstate
acquisition, revenues (net of reimbursements) is approximately $300
million.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
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,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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
