U.S. hotels can't go private due to credit crunch

By Deena Beasley

LOS ANGELES (Reuters) - U.S. hotel mergers and acquisitions will likely be on hold through at least the rest of the year because Wall Street bankers can't "check out" of the debt they floated to finance the go-go deals of 2007.

"For the next 12 to 18 months it is going to be like getting a turtle through a snake's belly," Jackson Hsieh, head of real estate, lodging and leisure at UBS Securities, said at a lodging industry conference here this week.

The logjam has already contributed to a slump in stock prices, with shares of Marriott International Inc (MAR.N: Quote, Profile, Research, Stock Buzz) down 30 percent since last April, while shares of Starwood Hotels & Resorts Worldwide Inc (HOT.N: Quote, Profile, Research, Stock Buzz) are down 39 percent since July. The Dow U.S. Hotels Index .DJUSLG has lost 27 percent of its value since July.

Wall Street banks are sitting on billions of dollars in debt tied to hospitality sector deals -- part of the trillions of dollars of debt-backed securities that can't be sold in the wake of the subprime mortgage crisis that has roiled global financial markets.

"Subprime was just the catalyst," said Michael Levy, managing director at Morgan Stanley.

He said the market has effectively been frozen since the last major deal -- private equity firm Blackstone Group LP's (BX.N: Quote, Profile, Research, Stock Buzz) July 2007 announcement of plans to acquire Hilton Hotels for $20 billion plus debt. The deal closed in October.

"You can't go private now because the debt markets are not available," said Chris Nassetta, Hilton's new chief executive.

M&A activity in the hotel industry, including deals to take public companies private, reached $55 billion in 2007 -- the highest value ever and the No. 3 year in terms of transaction volume, according to PricewaterhouseCoopers.