S&P Affirms Ratings, Outlook on InterContinental Hotels Group (IHG)

S&P Global Ratings said today that it affirmed its 'BBB' long-term corporate credit rating on InterContinental Hotels Group PLC (NYSE: IHG). The outlook remains stable.

We anticipate that IHG's credit metrics will weaken in 2016, albeit from strong levels in 2015, as a result of a $1.5 billion special dividend funded from disposals in Paris and Hong Kong. We have therefore revised our assessment of IHG's financial risk profile to significant from intermediate. At the same time, we removed the one-notch negative modifier for financial policy, since IHG has substantially completed its asset disposal program and we anticipate that any future shareholder returns will be more moderately sized.

Our revised assessment of IHG's financial risk profile has not led to a change in the rating since this is offset by the removal of the financial policy modifier.

Our base-case forecast anticipates that adjusted funds from operations (FFO)-to-debt will decline from 51.9% in 2015 to around the middle of the 20%-30% range in 2016 and 2017, and that adjusted debt-to-EBITDA will increase from 1.3x in 2015 to be in the range of 2.5x-3.0x.

The rating on IHG continues to reflect our opinion of the group's sizable and well-diversified, high-quality portfolio of hotels that target multiple price segments. It also reflects IHG's less capital-intensive and more profitable "asset-light" model, with hotels operated principally through management contracts and franchises rather than being owned or leased. We anticipate that IHG will report revenue per available room (RevPAR) growth in the low-single digits in 2016 and 2017, and that profit margins will moderately increase over this period, supported by IHG's strong brands and its growing pipeline of new hotels.

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