"$800 millions of bonds mature in 2011.
Would they be able to pay?"
They are attempting to refi them as well. The current preference according to the last CC is to exchange paper for paper.
They just retired their credit facility with a secured term loan, and the analyst that asked the question sounded like he was anticipating the possibility that they might choose to raise capital through a secondary offering. They clearly aren't desiring to do this, though.
With 20 or so hotels unencumbered, they may have some room to raise more cash through mortgaging unencumbered assets. But, what is the relative quality of those properties? What's the relative occupancy rate and RevPAR of the unencumbered and encumbered properties?
Have they already collateralized their quality properties and just the junk is left, or do they have quality assets left to leverage in refi? Anybody know?
I think the biggest problem with the strategy is that if these companies give back hotels and default and such, it will be much harder to get capital later. Everyone always talks about the accounting numbers and bookvalue and such. Its all nonsense, none of it really means anything at this point in time. companies can be cashflowing millions of dollars and if you just look at the accounting numbers, you'd think they were out of business.
The problem with giving the hotel to the mortgage holder is that they have to write off thier equity in the hotel. With common equity down to 269mm, or 4.16ps they can't afford too many write offs. Based on their guidance numbers, I calculate that they will have a loss to common in the 2nd half of about 65mm which will bring common equity down to 204mm or 3.15ps. If 2010 is the same as 2009 there will be no where for them to hide. I am long the pfds and short the common since I see little value in the common. I do think the pfds have some value above the current price. I hope I am right because I am loaded up on them with only a partial hedge with the common short. Good luck to all!!
Thanks. I'll have to listen to that call. I'm not long, just kicking tires. Was anything discussed as to whether or not this kind of situation is atypical for them, or will these situations arise frequently as other mortgages mature and require refi?
For that matter, the non-recourse stipulation seems like an advantage. If push comes to shove, they can let a fraction of properties revert to their lenders, or even retire a segment of underperforming properties by attrition.
This was discussed on the CC. Because the debt was sold in pieces the servicer could not negotiate unless the loan was in default. FCH stopped payments and are now working on a refinancing with the option of giving the hotels back without recourse. Some companies have allowed properties to be foreclosed by the first mortage lender which wipes out the secondary debt, and buying it back at the first mortage debt.