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Rating Action:

Moody's upgrades Hilton's CFR to Ba1; rates planned note issuance Ba2

10 Apr 2018

New York, April 10, 2018 -- Moody's Investors Service upgraded the ratings of Hilton Worldwide Finance, LLC including its Corporate Family Rating to Ba1, Probability of Default Rating to Ba1-PD, senior secured rating to Baa3 and its unsecured rating to Ba2. Moody's also assigned a Ba2 rating to the company's planned $500 million senior unsecured note issuance and affirmed the company's Speculative Grade Liquidity rating of SGL-1. The rating outlook is stable.

"The upgrade reflects our expectation that Hilton will be able to maintain its Moody's adjusted leverage below 4.5x over the next two years," stated Pete Trombetta, Moody's lodging analyst. "The company will grow earnings through increased fee revenues and net unit growth, with excess cash flow going toward share repurchases and dividends," added Trombetta.

The proceeds of the planned $500 million note issuance, along with revolver drawings and cash on hand, will be used to repurchase approximately 10 million shares (equivalent to about $750 million) from HNA Tourism Group Co., Ltd, Hilton's largest shareholder. Hilton has the option to increase the repurchase to a total of 16.5 million shares (equivalent to about $1.25 billion). The share repurchase is within management's previous guidance of between $1.0 billion and $1.4 billion for 2018. Despite the risk inherent in pulling a large part of its planned share repurchases to the beginning of the year, comfort is provided by the strong booking trends seen so far in 2018 and the company's financial policy toward maintaining leverage of 3.0x to 3.5x (company's definition).

Upgrades:

..Issuer: Hilton Escrow Issuer LLC (assumed by Hilton Domestic Operating Company Inc.)

....Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2(LGD5) from Ba3(LGD5)

..Issuer: Hilton Worldwide Finance, LLC

.... Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD

.... Corporate Family Rating, Upgraded to Ba1 from Ba2

....Senior Secured Bank Credit Facilities, Upgraded to Baa3(LGD2) from Ba1(LGD2)

....Senior Unsecured Regular Bonds/Debentures, Upgraded to Ba2(LGD5) from Ba3(LGD5)

Assignments:

..Issuer: Hilton Domestic Operating Company Inc.

....Senior Unsecured Regular Bond/Debenture, Assigned Ba2(LGD5)

Outlook Actions:

..Issuer: Hilton Worldwide Finance, LLC

....Outlook, Remains Stable

Affirmations:

..Issuer: Hilton Worldwide Finance, LLC

.... Speculative Grade Liquidity Rating, Affirmed SGL-1

RATINGS RATIONALE

Hilton's credit profile benefits from its large scale -- with about 856,000 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 105 countries across the world. Hilton's credit profile also benefits from its pipeline of new hotel rooms, which is the largest of our rated issuers. The company projects net unit growth of 6.5% in 2018, on top of 6.5% growth in 2017. Hilton's credit profile also benefits from its very good liquidity profile which includes strong free cash flow and a $1 billion revolving credit facility.

Hilton is constrained by its high Moody's adjusted leverage relative to other Ba1 rated companies -- we expect leverage will approximate 4.2x at the end of 2018 -- and we do not expect it to decline materially over the next two years. Hilton's management has publicly stated a net leverage target of between 3.0x and 3.5x. The company calculated its net leverage at December 31, 2017 at 3.1x, including adjustments for stock compensation, a furniture and fixture reserve and other adjustments that Moody's does not include. Moody's leverage calculation also includes operating lease capitalized at 5.0x, underfunded pension liability and 20% of performance guarantees. Also affecting Hilton, along with other lodging companies, is our expectation for modest revenue per available room (RevPAR) growth over the next year. Moody's forecasts muted RevPAR growth of 1% to 3% in 2018 as operators' desire to keep high occupancy limits their ability to increase average daily rates.

Hilton has very good liquidity as evidenced by strong free cash flow, ample availability under its $1.0 billion revolving credit facility, and more than sufficient headroom under its financial covenants. Moody's projects Hilton will generate about $800 to $900 million of free cash flow over the next 12 months, most of which will be used for share repurchases. The company has access to a $1.0 billion revolving credit facility which expires in 2021. There were no outstandings under the revolver at December 31, 2017. Hilton is subject to a springing covenant of first lien net leverage of below 7.0x (as defined) and we do not expect the covenant will need to be tested.

The stable rating outlook reflects Moody's view that Hilton will maintain leverage below 4.5x over the next 12 to 18 months. Moody's expects that if earnings were to deteriorate, the company would curtail share repurchase activities to stay within its public net leverage target of 3.0x to 3.5x (about 4.0x to 4.5x including Moody's adjustments).

Ratings could be downgraded if leverage is sustained above 4.5x and EBITA/interest expense is less than 3.5x. An upgrade would require adoption of financial policies and a capital structure indicative of an investment grade company and continued track record of controlling share repurchases to remain within its stated leverage target. Quantitatively, an upgrade would require debt/EBITDA approaching 3.5x and EBITA/interest expense of above 5.0x.

Hilton Worldwide Holdings Inc. is a leading hospitality company with over 5,200 managed, franchised, owned and leased hotels, resorts and timeshare properties comprising more than 856,000 rooms in 105 countries and territories. Prior to the announced transaction, HNA Tourism Group Co., Ltd. owned approximately 26%. Annual net revenues are $3.5 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 or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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

Janice Hofferber, CFA
MD - Corporate Finance
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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