Starwood Hotels plans to up liquidity by $1 billion within six months

By Jennifer Lanning Drey

Portland, Ore., April 30 - Starwood Hotels & Resorts Worldwide, Inc. expects to raise more than $1 billion of liquidity within the next six months through actions including a $500 million five-year senior bond offering announced Thursday, Vasant M. Prabhu, chief financial officer of Starwood, said during the company's first-quarter conference call held on the same day.

Additional events expected to help boost the company's liquidity include sales of vacation ownership receivables and the receipt of a $200 million tax refund.

The company has two vacation ownership receivables transactions in progress, one of which is expected to provide proceeds of $110 million to $125 million, Prabhu said.

Starwood's actions are designed to ensure the company can handle its debt maturities into 2012 and 2013, he said.

"Given the uncertainty and volatility in the capital markets, we continue to explore a number of creative ways to reduce our reliance on the bank debt market and to reduce our exposure to maturities over the next few years," Frits van Paasschen, chief executive officer of Starwood, said during the call.

Proceeds from the bond offering will be used to repay borrowings under the company's revolving credit facility and enhance liquidity, Prabhu said.

Starwood recently drew $500 million on its $1.9 billion revolver to pay off the June maturity of its term loan. However, the company does not intend to use the revolver as a chief source of financing, he said.

As previously reported, Starwood also recently amended its revolver, revising pricing and increasing the consolidated leverage ratio to 5.5 times from 4.5 times.

Starwood sees no issue with being able to remain in compliance with the amended covenants related to the credit facility even under a variety of scenarios, Prabhu said.

At March 31, Starwood had total debt of $3.96 billion and cash and cash equivalents of $164 million, which included $88 million of restricted cash.

Intensified cash management

In light of the expectation that pressure on room rates will continue through the balance of the year, Starwood is also working to reduce costs and capital expenditures to held maintain financing flexibility, van Paasschen said.

"The severity of this current business environment has driven us to intensify our focus on managing our business for cash," he said.

Starwood reported income from continuing operations of $7 million for the first quarter, compared to income from operations of $79 million in the comparable period of 2008. First-quarter net income was $6 million, down from net income of $32 million in the first quarter of 2008.

The company remains on track to achieve overhead savings of more than $100 million on an annualized basis as a result of the final phase of a cost-reduction program to be completed in the second quarter, van Paasschen said.

"We will be unrelenting in our efforts to pull cash out of the business and improve our financial flexibility," he said.

Starwood is a hotel and leisure company based in White Plains, N.Y.

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