S&P Assigns 'B+' Rating to Extended Stay America (STAY)

Standard & Poor's Ratings Services assigned Charlotte, N.C.-based hotel company Extended Stay America Inc. (NYSE: STAY) its 'B+' corporate credit rating. The rating outlook is positive.

At the same time, we assigned ESH Hospitality Inc.'s proposed $375 million senior secured term loan due 2019 our 'B+' issue-level rating (same as the corporate credit rating), with a recovery rating of '3', indicating our expectation for meaningful (50% to 70%) recovery in the event of a payment default. The company plans to use the proceeds, together with cash on hand, to repay about $365 million of high coupon mezzanine loans and pay fees and expenses.

ESH Hospitality Inc. (ESH REIT) is a real-estate investment trust that owns the hotel assets of Extended Stay America. Extended Stay America has a 55% ownership interest in the REIT. Extended Stay America is 100% owned by financial sponsors and public shareholders. Therefore, because of Extended Stay's controlling financial interest in, and the strategic importance of, ESH REIT, we consolidate all operations and debt for our analysis.

"The ratings reflect the company's operations in the highly competitive economy segment of the lodging industry, an area of the lodging market with relatively low barriers to entry and price-sensitive consumers," said Standard & Poor's credit analyst Carissa Schreck. "The ratings also reflect our expectation for operating lease-adjusted debt to EBITDA of about 5x at the end of 2014, improving to the mid-4x area at the end of 2015, and for funds from operations to total debt of 12% and in the mid-teens percentage area in 2014 and 2015, respectively. We expect the company to continue to invest in its hotel renovation program and incur significant capital expenditures through 2015."

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