S&P lowers LodgeNet outlook to negative

Standard & Poor's said it revised its outlook on LodgeNet Entertainment Corp. to negative from stable, following the company's announcement that it has entered into an agreement to acquire competitor On Command Corp. for $380 million.

At the same time, the agency said it affirmed the B+ corporate credit rating on the company.

The agency noted that the transaction would increase LodgeNet's room base, create relationships with additional hotel customers, eliminate a competitor and provide an opportunity for cost reductions.

However, LodgeNet would be increasing its size significantly with this acquisition, S&P said, adding that it is concerned about some integration risk and the near- to intermediate-term weakening of LodgeNet's credit profile as a result of the transaction.

The ratings reflect LodgeNet's exposure to the cyclical and seasonal lodging industry, the expectation that the company's substantial capital spending will continue to limit its discretionary cash flow and the limited size and long-term growth potential of this market niche, S&P said.

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