La Quinta Holdings (LQ) Assigned 'B+' Rating by S&P

Standard & Poor's Ratings Services assigned Irving, Texas-based hotel company La Quinta Holdings (NYSE: LQ) a 'B+' corporate credit rating. The rating outlook is stable.

At the same time, we assigned the company's $2.35 billion senior secured credit facility (consisting of a $250 million revolver due 2019 and $2.1 billion first-lien term loan due 2021) our 'BB-' issue-level rating (one notch above the corporate credit rating), with a recovery rating of '2', indicating our expectation for substantial (70% to 90%) recovery for lenders in the event of a payment default. We expect the revolving credit facility will be undrawn at close.

La Quinta used the proceeds from this debt issuance, in addition to proceeds from the April 9, 2014, IPO, to repay existing debt balances, and for transaction fees and expenses.

The 'B+' corporate credit rating reflects our assessment of La Quinta's business risk profile as "fair" and our assessment of the company's financial risk profile as "highly leveraged," according to our criteria.

Our assessment of La Quinta's business risk profile as fair reflects the company's single brand portfolio that targets the mid- to upper-midscale lodging segment, an area of the lodging market with low barriers to entry, and price-sensitive consumers. We also view the single brand as a potential competitive weakness in attracting third-party capital investment to grow its system of franchised rooms. These risks are partially offset by La Quinta's good operating efficiency, focus on further growth through its franchised portfolio, which we view to be less volatile in a downturn, and good brand recognition.

Our assessment of La Quinta financial risk profile as highly leveraged reflects our financial policy assessment of the company's financial sponsor, Blackstone, which continues to own an approximately 70% stake of La Quinta following the IPO. This majority ownership means Blackstone controls La Quinta's financial policy in the intermediate term. In addition, we expect total lease-adjusted net debt to EBITDA, incorporating our base-case performance assumptions, in the mid-5x area in 2014 and high-4x area in 2015.

You May Also Be Interested In

• salesforce.com (CRM) Reiterated at Market Outperform by Citizens
• Wedbush Downgrades Tscan Therapeutics Inc (TCRX) to Neutral
• SailPoint Technologies Holdings (SAIL) PT Raised to $25 by Cantor Fitzgerald on Solid Checks