Fitch Rates Marriott's Series N Notes 'BBB'; Outlook Stable

NEW YORK--()--Fitch Ratings has assigned a 'BBB' rating to Marriott International Inc.'s (Marriott) proposed seven- year unsecured note issuance. The Rating Outlook remains Stable. A full list of Fitch's ratings for Marriot follows at the end of this release.

Marriott will issue the notes under its existing indenture dated Nov. 16, 1998. The notes will be pari passu with all of Marriott's existing senior unsecured debt. Marriott is obligated to repurchase the notes at 101% of par upon change of control, defined as a transfer of more than 50% of voting stock and/or a ratings downgrade to below investment grade. The notes do not contain any financial covenants, similar to Marriott's existing bonds.

Marriott will use the proceeds for general corporate purposes, which may include repayment of a portion of its current commercial paper (CP) outstanding. Marriott had $1.09 billion of CP outstanding at June 30, 2014.

Fitch expects the series N issuance to be completed on a leverage-neutral basis, with Marriott essentially refinancing a portion of its CP borrowings with longer tenor unsecured bonds. Marriott remains committed to its 3.0x to 3.25x adjusted leverage target, which Fitch views as appropriate for Marriott's 'BBB' IDR . Fitch calculates Marriott's consolidated lease adjusted leverage at 2.8 times (x) for the trailing-twelve months (TTM) ended June 30, 2014.

KEY RATING DRIVERS

The ratings and Outlook reflect Fitch's positive near-to-intermediate term view towards lodging industry fundamentals. Strong corporate and leisure transient demand and limited new supply support Fitch's base case scenario of 7.5% U.S. industrywide RevPAR growth in 2014. Fitch expects Marriott's systemwide RevPAR to grow at a rate moderately below Fitch's 7.5% U.S. industrywide projection. However, this rate is within Marriott's guided range of 5% - 7% RevPAR growth in 2014 in North America and worldwide.

Marriott's had $192 million of cash and $914 million of availability under its revolving credit facility (total capacity of $2 billion less $1.09 billion of CP outstanding) that supported its liquidity position at June 30, 2014. Fitch expects Marriott to generate free cash flow of roughly $400-$500 million in 2014 and 2015. Despite the potential for increased investment spending, this should provide some financial flexibility for continued share repurchase activity.

The 'F2' short-term IDR and CP ratings reflect Marriott's 'BBB' long-term IDR, strong cash flow generation and liquidity profile. Further, the short-term and long-term IDRs are supported by the company's capital recycling business model, which provides solid financial flexibility with respect to discretionary capital outlays.

RATING SENSITIVITES

--Fitch would consider taking a positive rating action if Marriott explicitly guides to a more conservative policy that includes a stated leverage target below 3.0x. At this point, however, Fitch believes it is unlikely given the potential growth opportunities in the lodging industry over the next few years and Marriott's historical financial policies.

--Fitch expects management to support its balance sheet at a level commensurate with a 'BBB' rating. If management changes its financial policy and opts to maintain leverage at a level higher than 3.0x, Fitch would consider taking a negative rating action.

--In the event of a significant downturn, Marriott could maintain its current rating if it pulled back on investment spending and share repurchases and reduced its CP balance. A negative rating action could take place if Marriott chose not to adjust its capital allocation in a downturn scenario.

--A negative rating action could also occur if a downturn is more severe than Fitch's stress case scenarios, which contemplates industrywide RevPAR declines of 13-15%. Due at least in part to the more attractive supply growth environment relative to the last recessions, we believe RevPAR declines would be somewhat less severe than the 20% declines experienced in 2008 - 2009.

--Marriott's 'F2' short-term rating is supported by its back-up liquidity coverage from its RCF and sufficient internally generated sources of liquidity to amply cover near-term debt service. If these liquidity measures deteriorate over time, there could be pressure on the 'F2' rating.

Fitch currently rates Marriott as follows:

--IDR 'BBB';

--Short-term IDR 'F2';

--Commercial paper 'F2';

--$2 billion senior unsecured credit facility 'BBB';

--$2.2 billion (excluding proposed issuance) senior unsecured notes 'BBB'.

Fitch rates the following:

Marriott RHG Acquisition B.V.

--Short-term IDR 'F2';

--Commercial paper 'F2';

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'M&A-ybe: U.S. Lodging deals possible, spinoffs unlikely (What U.S. Lodging C-Corps and REITs are Saying)' (Sept. 03, 2014);

--'Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage' (May 28, 2014);

--'U.S. Lodging: Supply Growth Accelerating (What U.S. Lodging C-Corps and REITs are Saying)' (May 13, 2014);

--'Fitch Affirms Marriott's IDR at 'BBB'; Outlook Stable' (Jan. 17, 2014);

--'2014 Outlook: Cross-Sector Lodging & Timeshare - The Penthouse View' (Dec. 13, 2013).

Applicable Criteria and Related Research:

M&A-ybe: U.S. Lodging Deals Possible, Spinoffs Unlikely (What U.S. Lodging C-Corps and REITs Are Saying)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=762308

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

U.S. Lodging: Supply Growth Accelerating (What U.S. Lodging C-Corps and REITs are Saying)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748326

2014 Outlook: Cross-Sector Lodging & Timeshare (The Penthouse View)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726600

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891234

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Contacts

Fitch Ratings
Primary Analyst
Stephen Boyd, CFA
Director
+1-212-908-9153
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Timothy Lee
Associate Director
+1-512-215-3741
or
Committee Chairperson
Robert Curran
Managing Director
+1-212-908-0515
or
Media Relations
Brian Bertsch
+1-212-908-0549
New York
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Stephen Boyd, CFA
Director
+1-212-908-9153
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Timothy Lee
Associate Director
+1-512-215-3741
or
Committee Chairperson
Robert Curran
Managing Director
+1-212-908-0515
or
Media Relations
Brian Bertsch
+1-212-908-0549
New York
brian.bertsch@fitchratings.com