Aug 1 - Standard & Poor’s Ratings Services said today that its ‘BBB’ corporate credit rating on Hyatt Hotels Corp. is not currently impacted by the company’s announcement its board authorized up to $200 million in common stock repurchases. The authorization is moderately sized compared to more than $900 million in cash and short-term investments at June 2012. In addition, the ratio of total lease adjusted debt to EBITDA was 2.7x at June 2012, within our 3x threshold for Hyatt at its current rating.
Hyatt’s reported North American revenue per available room (RevPAR) grew over 8% and international RevPAR grew nearly 4% in the June 2012 quarter. In the first half of 2012, Hyatt’s EBITDA grew 19% due to RevPAR growth, renovated hotel rooms coming back online, and acquired EBITDA. As a result, Hyatt is on track to meet our expectation for 2012 EBITDA to increase in the mid-to-high teens percentage area and for leverage to improve modestly to the mid-2x area by the end of 2012. Current trends are good and we believe U.S. RevPAR (Hyatt generates about two-thirds of its EBITDA in North America) will grow 5% to 7% in 2012 and in the low-to-mid single digits in 2013. Consequently, we believe Hyatt can complete the current share repurchase authorization without meaningfully impairing to its liquidity profile. However, Hyatt’s announcement represents a more aggressive financial policy of using part of its material cash and short-term investment balances to programmatically return capital to shareholders, particularly because the authorization follows acquisition and share repurchase activity in 2011 and 2012 that resulted in a significant increase in debt and a significant decrease in cash and short-term investments. Debt balances increased almost 60% to $1.2 billion at June 2012 compared to $770 million at June 2011. Cash and short-term investments decreased to around $900 million at June 2012 compared to $1.4 billion at June 2011. Furthermore, Hyatt plans to allocate a significant $500 million of capital to joint venture investments and hotel development over the next few years, which we believe will use a portion of the company’s expected debt capacity over this period. If Hyatt pursues additional share repurchase authorizations or material additional debt-financed acquisitions over the next 12 to 24 months in a manner that we believe would drive leverage above 3x on a sustained basis, we may consider a lower rating.