Marriott International has raised $920m in cash through its credit card partners, including $350m through the pre-selling of loyalty points.
The move came less than a month after Hilton raised $1bn from an advance sale of loyalty points to its co-brand credit card partner, American Express.
Marriott International said that had signed amendments to its existing co-brand credit card agreements with JPMorgan Chase & Co and American Express, with $570m coming from Chase and $350m coming from American Express.
The $570m from Chase included $500m of prepayment of future revenues and $70m from the early payment of a previously-committed signing bonus under the co-brand credit card agreement. The $350m from American Express was for the pre-purchase of Marriott Bonvoy points and other consideration. In each case the cash will be recorded by Marriott as deferred revenue and will be available for general corporate purposes.
Both amendments included extensions of the existing co-brand credit card agreements.
The company also terminated the $1.5bn 364-day revolving credit facility commitment it announced on 14 April, the capacity of which was reduced as a result of the Series EE senior notes offering the company completed on 16 April.
On the same date, a filing from Hilton outlined its raising of $1bn, which it said contributed to cash of around $2.8bn, which would provide it with adequate liquidity to fund its operations over the next 18 to 24 months
Hilton said: “American Express and their respective designees may use the points in connection with the Hilton Honors co-branded credit cards and for promotions, rewards and incentive programmes or certain other activities as they may establish or engage in from time to time.”
Atanas Christov, founder & CEO, Affinity Capital Exchange, a New York-based technology start-up developing technology and infrastructure to allow airlines, hotels, banks and institutional investors to access financial instruments backed by loyalty point portfolios. He told us: “Hotels are following in the footsteps of the airlines, and discovering a different way to monetise their programmes. We have seen examples where the largest programmes have been a way to unlock liquidity for their parent airlines, in good times and bad. More are discovering that the true power of a good loyalty programme goes far beyond the more obvious customer-focused benefits. Using the programme as an ATM has a number of benefits, as the buyers have a direct interest in sustaining and growing program relevance.
“Hotels – the ones that can – are following the airline model because they are in need. And a large co-brand card portfolio is valuable to both the hotel chain and the credit card issuer. So I don’t expect a substantial drop in price for the pre-sold points, the profits generated by their use are compelling and discouraging penny-pinching.
“Of course there are risks (as Hilton remains able to set terms and conditions on its point currency, and may even devalue the points). Some of those risks are managed contractually, others take care of themselves: Neither company has an incentive to upset the apple cart.
“This is the first jumping-off point for hotels as they try to be more innovative and respond quickly to the new world. This is a very efficient way to generate cash, where other means may fail or deplete.”
Christov highlighted that recent accounting changes have made the valuation of loyalty points more standard and reliable. He pointed to the way in which loyalty points were now accounted for on balance sheets, commenting: “They used to be footnotes, but now they are more central and show up on the balance sheet, more adequately valued. They are not ‘free money’ – but have enormous potential and a good runway to create value. “
Christov estimated that the majors would raise at least $10bn using points during the crisis. His firm was working with several financial services firms to structure and manage collateral for transactions like these and others, more directly targeted to institutional capital markets. “We are in active discussions and trust our work will help attract and focus liquidity, both now and in the future.”
Insight: Yes, you heard it here first and there is really no getting around how smug we’re going to be about this. It’s likely that Marriott and Hilton are going to be pretty smug about it as well because this is free money in all but name.
The question that remains is where all this will shake out, because those of us with even a passing interest in economics will tell you that there’s no such thing as free money. What the owners are telling us is that they’ve been paying into the schemes, so at a time when they are expected to be paying out for extra Lysol, they were hoping that this money would trickle down in disinfectant form.
It won’t. But, as we heard elsewhere this week from Michels & Taylor, there will be openings in terms of adherence to franchise agreements and some flexibility on fees. Maybe get your lawyer to cough ‘loyalty’ a few times when the contract is up. It goes both ways.