Fitch has downgraded NH Hotel Group from B to B-; outlook negative, in part because of parent Minor Group’s higher leverage.
The ratings agency said that it expected worldwide occupancies to fall sharply during 2020, before “normalising progressively” from the fourth quarter into 2021.
Fitch said: “The downgrade reflects a weakening of the consolidated credit profile of the Thai group Minor, which owns 94% of NH, due to severe operational disruption in the lodging sector - one of the sectors most impacted by the COVID-19 outbreak.
“The negative outlook reflects uncertainty around the financial profile of the consolidated Minor group and of NHH once the crisis concludes, which may exhibit weaker-than-expected credit metrics.”
NH's standalone credit profile was revised down to 'b' from ‘b+’, reflecting, Fitch said, satisfactory financial flexibility to withstand the current crisis, with a progressive rebound of operational performance in 2021 to levels seen in 2019, and a continued deleveraging path, although delayed by around 24 months compared with our previous rating case.
Fitch added: “As a result of the restriction of movements imposed by governments to limit the pandemic spread and exceptional measures to offset sharp declining demand, we expect worldwide occupancies to fall sharply during 2020, before normalising progressively from 4Q20 into 2021. Some government support to soften the economic shock has been incorporated in our assumptions, but additional initiatives could ease the immediate downturn impact from the outbreak.”
The agency said that operating leases remained a high burden on adjusted financial debt, especially given the high share of fixed rents, with this was mitigated by NH's efforts to renegotiate and cancel onerous leases along with rent variability and by NH introducing a cap mechanism. As of December 2019, 24% of its rents were variable or had a cap mechanism.
Fitch said that NH ranked among the top 10 European hotel chains in Europe, significantly smaller than global peers such as Accor SA (BBB-/Negative) or Meliá Hotels International by breadth of activities and number of rooms. NH focused on urban cities and business travellers, while Accor and Meliá were more diversified across leisure and business customers. NH was comparable with Radisson Hospitality AB (B+/Stable) in size and urban positioning, although Radisson was present in a greater number of cities. NH had an Ebitda margin above 17% in 2019, which was above close competitor Radisson's, but still far from that of investment-grade, asset-light operators such as Accor or Marriott.