S&P cuts Courtyard by Marriott II

Stand downgraded Courtyard by Marriott II LP including cutting its $127.4 million 10.75% senior secured notes due 2008 to CCC+ from B- and maintained a negative outlook.

S&P said the action is because of Courtyard by Marriott II's smaller-than-expected earnings cushion and reserves available for senior note interest, after CMBS debt is paid.

As a result of a shortfall in operating cash flows available to cover CMBS and senior note debt service fees due Feb. 1, 2003, the servicer utilized subordinated ground rent and base fees from the cash collateral account, and clawed back some of the subordinated ground rent paid out in the recently completed fiscal year, S&P noted. The company also utilized funds in the senior note debt service reserve. At the end of February 2003, the company had drawn $5.7 million of the $6.8 million senior note reserve.

While lodging demand is seasonally weakest in the fourth quarter of the year, Courtyard by Marriott II's operating profit levels were exacerbated by weaker-than-expected lodging demand, S&P said. For the full 2002, the CBMII portfolio experienced a 9.8% decline in revenue per-available-room (RevPAR).

The negative outlook reflects uncertainty over the magnitude of negative impact the U.S. war with Iraq will have on an already depressed lodging environment, S&P added.

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