New York, September 16, 2020 -- Moody's Investors Service, ("Moody's") assigned
a B3 rating to Aimbridge Hospitality Holdings, LLC's ("Aimbridge")
planned $150 million first lien senior secured term loan.
At the same time, Moody's downgraded the rating on the company's
existing first lien senior secured bank credit facility to B3 from B2
and affirmed the company's B3 Corporate Family Rating and B3-PD
Probability of Default Rating. The outlook remains negative.
Proceeds from the planned term loan will be used to repay borrowings under
the company's $120 million revolver due 2024, bolstering
Aimbridge's liquidity during this time of unprecedented earnings decline.
The downgrade to the company's existing first lien senior secured
bank credit facility reflects the impact of the additional $150
million of secured debt in the capital structure, for a total of
$1.05 billion of first lien debt, relative to the
$160 million of second lien debt (unrated), per Moody's
Loss Given Default methodology. The affirmation of the B3 CFR reflects
Aimbridge's lack of near dated debt maturities and overall good liquidity
following the debt raise.
Downgrades:
..Issuer: Aimbridge Hospitality Holdings, LLC
....Senior Secured Bank Credit Facility,
Downgraded to B3 (LGD3) from B2 (LGD3)
Assignments:
..Issuer: Aimbridge Hospitality Holdings, LLC
....Senior Secured Bank Credit Facility,
Assigned B3 (LGD3)
Affirmations:
..Issuer: Aimbridge Hospitality Holdings, LLC
.... Probability of Default Rating,
Affirmed B3-PD
.... Corporate Family Rating, Affirmed
B3
Outlook Actions:
..Issuer: Aimbridge Hospitality Holdings, LLC
.... Outlook, Remains Negative
RATINGS RATIONALE
Aimbridge Hospitality Holdings, LLC's credit profile is constrained
by its high debt/EBITDA which will well exceed its downgrade factor of
6.5x 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), which we regard
as a social risk under our ESG framework, given the substantial
implications for public health and safety. This expected material
increase in leverage follows a notable increase in debt to finance Aimbridge's
2019 acquisition of Interstate Hotels & Resorts for approximately
$800 million, including $500 million of debt.
Aimbridge's scale is small in terms of revenue and earnings relative to
other single B rated Business and Consumer Services companies.
Aimbridge's credit profile reflects our expectation that the company 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
1,360 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 our expectation that Aimbridge's earnings
will deteriorate materially in 2020 resulting in debt/EBITDA of above
6.5x for at least the next 12 months.
If this transaction closes as expected it will strengthen Aimbridge's
liquidity. The company will have pro forma cash balances of about
$100 million after repaying the revolver borrowings. This
liquidity will provide cushion to absorb an extended period of cash flow
pressure. Notably the company has no near term maturities until
its revolver expires in 2024 and its first lien term loans mature in 2026.
The credit agreement contains a springing leverage covenant which we do
not expect will be tested in the near term. Alternate sources of
liquidity are limited.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
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 1,360 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 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
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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.
The ratings have been disclosed to the rated entity or its designated
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for Designating and Assigning Unsolicited Credit Ratings available on
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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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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
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U.S.A.
JOURNALISTS: 1 212 553 0376
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