REPORT FROM THE U.S.—The public markets are becoming an increasingly attractive source of funds for companies during the lending drought.
Wyndham Worldwide Corporation, for one, in September priced US$250 million of senior unsecured notes. The company said net proceeds would be used to reduce debt and for general corporate purposes. A Wyndham spokeswoman did not return a call for comment.
And the list goes on during just the past two months:
With no credit loosening in sight, companies are likely to continue looking at such alternatives, finance sources said, especially with the recovery in the stock markets. In the United States year-to-date, the Dow Jones Industrial Average is up 5.6%, the S&P 500 is up 4.5%, and the NASDAQ is up 5.9%.
“Corporations are taking advantage of the markets,” said Adam Weissenberg, vice chairman of United States tourism, hospitality and leisure for Deloitte. “They’re saying, ‘Things are good now. Let’s take advantage of it.’”
No loosening
Bank financing likely won’t be a big factor for hotels anytime soon, said Joel Ross, principal of Citadel Realty Advisors. “I just think everybody is way, way over their skis in optimism,” he said of talk of potential loosening in the credit markets.
 |
|
David Loeb
senior research analyst
R.W. Baird
|
He added, “I kind of compare it to getting hit with an ironing board and now you’re getting hit with a stick. It doesn’t hurt as bad.”
A spokeswoman for the American Banking Association did not return a call for comment.
The increased offerings could be a representation of what’s happening elsewhere in the markets, said Rod Petrik, senior managing director at Stifel Nicolaus. With 10-year treasuries down, there is a demand for fixed-income products, he said.
“I wouldn’t be surprised to see companies do debt offerings or preferred stock options,” he said.
David Loeb, senior research analyst at R.W. Baird, wondered if Hilton Worldwide might be the next company to raise capital through an initial public offering.
Hilton’s president and CEO Chris Nassetta dismissed that idea last month during a wide-ranging interview with HotelNewsNow.com’s Jeff Higley.
“In terms of an IPO … it’s premature to talk about it,” he said. “We’re owned by private equity. They’re terrific partners. In April, we announced that Blackstone and their co-investors invested another (US)$800 million into our enterprise, which I think suggests a strong level of support for what we’re doing and where this company is going.
“They feel great about the long-term prospects of the business,” he added. “As a private-equity entity, at some point they will look for an exit opportunity somewhere down the road and that could involve an IPO, but at this point there’s nothing on the immediate horizon and it’s premature to discuss it.”
Potential hiccups
There are potential drawbacks for the companies that dip their toes into the public markets, sources warned. “Some companies might not want the additional leverage,” Loeb said.
The larger macroeconomic picture leaves room for concern, too, Weissenberg said. There is a lot of optimism about an economic rebound, he said, but there are still big concerns about housing, unemployment, etc.
Still, public fundraising will continue to be important for hotels, he said. “It seems to be opening more and more,” Weissenberg said.
