S&P rates B&B Hotels loans B, CCC

S&P said it assigned a preliminary B- issuer credit rating to B&B Hotels' parent company, Casper MidCo SAS, along with a preliminary B rating to the proposed first-lien term loan B rating and preliminary CCC rating to the proposed second-lien term loan B to be issued by Casper Bidco SAS.

B&B Hotels will be acquired by the private equity division of Goldman Sachs from PAI Partners for about €2 billion in a leveraged buyout, S&P explained.

The proposed debt structure to partly finance the leveraged buyout will consist of a €120 million revolving credit facility, €665 million first-lien term loan B and €155 million second-lien term loan B.

The agency said it views the capital structure as highly leveraged, given the estimate of adjusted debt-to-EBITDA of 7.6x post transaction, particularly relative to the company's small scale, modest diversification and high operating leverage model.

The positive outlook captures the potential for an upgrade if the continued expansion of B&B Hotels translates into rapid EBITDA growth, reduced leverage of about 7x by 2020 and positive free operating cash flow generation, S&P said.

The ratings reflect the company's high fixed-cost and asset-heavy business model, the agency said.

This is because the company leases nearly all its properties under long-term contracts, leaving limited flexibility in case of revenue decline, S&P said.

These factors are partly mitigated by the company's improving brand awareness and recognition thanks to the company's rapid expansion across Europe, the agency said.

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