S&P assigns Motel 6, loan B-

S&P said it gave B- ratings to BRE/Everbright M6 Borrower LLC (Motel 6) and its planned $300 million term loan. The loan’s recovery rating is 3, indicating expectations for average (50%-70%; rounded estimate: 50%) recovery in default.

“The B- rating primarily reflects our expectation for very high leverage in 2021 (potentially improving to about 9x in 2022), Motel 6's smaller scale relative to some of its rated lodging peers, and the low barriers to entry and elevated price competition in the economy lodging segment, which are partially offset by its less volatile operating performance relative to its peers during the coronavirus pandemic, good brand recognition in the economy segment, good geographic diversity, and track record of successful franchisee expansion,” S&P said in a press release.

Motel 6 will use the proceeds and a $685 million commercial mortgage-backed security issuance to refinance its CMBS debt, a mezzanine loan, fund-level debt held by Blackstone Real Estate Partners VII and to fund a 12-month CMBS debt service reserve.

The outlook is stable. S&P said forecasts Motel 6’s improving revenue per available room (RevPAR) will reduce its leverage to about 9x and improve its EBITDA coverage of interest expense to the mid-2x range in 2022.

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