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Rating Action:

Moody's places Hilton's ratings on review for downgrade

23 Mar 2020

New York, March 23, 2020 -- Moody's Investors Service, ("Moody's") placed the ratings of Hilton Worldwide Finance, LLC (Hilton) on review for downgrade 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 this time.

"The review for downgrade is prompted by earnings pressure Hilton will face in 2020 as travel restrictions being put in place across the US related to the spread of the COVID-19 coronavirus causes significant declines in occupancy and revenue per available room (RevPAR)," stated Pete Trombetta, Moody's lodging and cruise analyst. "Hilton's leverage will increase to well above its downgrade trigger of 4.5x, but Hilton's liquidity is adequate to get the company through this period of earnings pressure," added Trombetta.

On Review for Downgrade:

..Issuer: Hilton Domestic Operating Company Inc.

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2 (LGD5)

..Issuer: Hilton Escrow Issuer LLC

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2 (LGD5)

..Issuer: Hilton Worldwide Finance, LLC

.... Probability of Default Rating, Placed on Review for Downgrade, currently Ba1-PD

.... Corporate Family Rating, Placed on Review for Downgrade, currently Ba1

....Senior Secured Bank Credit Facility, Placed on Review for Downgrade, currently Baa3 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2 (LGD5)

Outlook Actions:

..Issuer: Hilton Worldwide Finance, LLC

....Outlook, Changed To Rating Under Review 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 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 Hilton 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 Hilton of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered.

Hilton's Ba1 Corporate Family Rating benefits 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 financial volatility. Following the revolver draw we estimate that Hilton has about $2.1 billion of cash on hand. Hilton has maintained high adjusted leverage relative to other Ba1 rated companies, and therefore we expect its leverage at the end of 2020 to well exceed its downgrade trigger of 4.5x. However, the company's very good liquidity, including a cash position of about $2.1 billion and the ability to cut cash uses such as share repurchases which totaled $1.5 billion in 2019, will give the company the ability to reduce leverage when demand returns to more normal levels.

The review will focus on Hilton's ability to reduce expenses and take other actions to preserve liquidity during this period of significant earnings decline, the pace of declining occupancy and RevPAR in the US, and the impact on business and leisure travel over the next two years as people feel more comfortable with traveling again. Our current assumption is that our lodging companies' systemwide RevPAR is weakest in the second quarter, down more than 60%, with some recovery in the third and fourth quarters resulting in total earnings decline for the year of at least 40% for most lodging companies. The review will consider the depth of occupancy declines over the coming weeks and the likelihood of a prolonged dislocation caused by continued travel restrictions.

Hilton currently has significant cash balances after drawing the full availability under its $1.75 billion revolver, but Moody's will assess the potential severity and duration of the drop in occupancy, and the effects on the company's metrics and liquidity.

Hilton Worldwide Holdings Inc. is a leading hospitality company with 6,110 managed, franchised, owned and leased hotels, resorts and timeshare properties comprising more than 971,780 rooms in 119 countries and territories. Annual net revenues are $3.8 billion.

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

No Related Data.
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