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Ratings Actions & Outlooks
June 26, 2008
Global Hyatt 'BBB+' Rating Outlook Revised To Negative By S&P
Standard & Poor's Ratings Services revised its rating outlook on Global Hyatt Corp. to negative from stable, while affirming its 'BBB+' corporate credit rating on the company.
"The outlook revision reflects our expectation that, over the intermediate term, Global Hyatt may begin to pursue a more aggressive financial policy of using debt to finance its strategic growth initiatives," said Standard & Poor's. "This comes at a time when flexibility in the company's leverage profile for additional large debt-financed investments is limited at the current rating."
The rating agency said its growth expectations for the company are consistent with Global Hyatt's successful efforts in recent years to expand the number of brands in its system to create price segment diversification and a broader distribution system. "Even though we may ultimately conclude that Global Hyatt's posture toward debt-financed growth may be aligned with a lower rating over time, the company's current growth strategy is likely to diversify and improve the business profile," the rating agency said.
A secondary, but also important, factor in the negative outlook revision is the rating agency's expectation that growth in the US hotel industry is slowing at a faster rate than it had previously anticipated.
Moody's Downgrades SourceGas' Debt
Moody's Investors Service downgraded the debt of SourceGas LLC to Ba1 from Baa3 and assigned a corporate family rating of Ba2 to the SourceGas family.
The rating outlook is stable, and the rating action concludes the review for possible downgrade that was initiated on May 30. The downgrade adjusts SourceGas' credit rating to reflect the company's growth-oriented strategy via acquisitions, which will likely raise business, event, refinancing, and integration risk, and stress financial metrics.
The review of SourceGas's credit follows the natural gas distribution company's announcement that it will acquire Arkansas Western Gas Co., and will consider other opportunistic acquisitions as well. While the acquisition will expand the company's service area and is expected to be earnings accretive, this purchase and the growth strategy will expose SourceGas to the aforementioned future risks, according to Moody's.
In addition to incremental debt, SourceGas's financial performance could experience further stress from the regulatory lag typical in this industry, and it is also likely to file additional post acquisition rate cases after the appropriate rate-freeze period.
Finally, additional acquisitions will bring on more goodwill, which regulated companies are generally not allowed to pass along to ratepayers in the form of expanded base rates. This will restrict returns while raising leverage under Moody's rating methodology.
SourceGas is a limited liability company headquartered in Lakewood, Colorado. Its operating subsidiaries are largely retail gas distributors serving over 266,000 customers in Colorado, Nebraska, Wyoming and Hermosillo, Mexico.
AutoZone Inc. Downgraded To 'BBB' On Expanded Share Repurchase
Standard & Poor's lowered the corporate credit rating on Memphis-based AutoZone Inc. to 'BBB' from 'BBB+', following the company's announcement that it will expand its share repurchase program and increase leverage.
This action reflects the company's more aggressive financial policy. "At the same time, we are affirming the company's 'A-2' short-term and commercial paper (CP) ratings. The outlook is stable," the rating agency says.
Moody's Cuts American Axle's ratings
Moody's lowered American Axle & Manufacturing Holdings' corporate family rating to B1 from Ba3, as well as its senior unsecured rating to B1 from Ba3 on American Axle's notes and term loan.
The rating agency said American Axle's speculative grade liquidity rating also
has been lowered to SGL-3 from SGL-2.
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