Fitch Affirms 'BB-' IDR for La Quinta Corp.; Outlook Now Positive.CHICAGO -- Fitch Ratings Fitch Ratings An international rating agency for financial institutions, insurance companies, and corporate, sovereign, and municipal debt. Fitch Ratings has headquarters in New York and London and is wholly owned by FIMALAC of Paris. has affirmed La Quinta A division of Seagate that was originally an acquisition and then absorbed into the company by 1999. Quinta was the developer of Optically Assisted Winchester (OAW) technology. See OAW. Corp.'s issuer default rating (IDR IDR In currencies, this is the abbreviation for the Indonesian Rupiah. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) at 'BB-', its senior unsecured notes at 'BB-', and its preferred stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. at 'B'. Additionally, Fitch has assigned a 'BB' rating to the senior secured credit facility. The Rating Outlook has been revised to Positive from Stable. The one notch difference in the rating of the senior secured credit facility and the IDR is due to the guarantee provided to the credit lenders by La Quinta Corp.'s subsidiaries. Additionally, the credit facility has a stronger covenant package than any of the senior unsecured notes, which are currently rated 'BB-'. La Quinta's ratings reflect the company's solid market position as a leading limited service lodging provider, its high quality asset portfolio, an improved credit profile, robust lodging fundamentals, and Fitch's expectation for a strong 2006. Also considered is management's strong track record of executing on operational goals. Management has delivered on its stated goals to divest the health care assets (completed fourth quarter 2002), launch a successful franchise program, upgrade assets to improve future performance, and expand its hotel system through strategic acquisitions. Rating concerns include expanded capital expenditures in the near term, acquisition risk, and pricing transparency due to proliferation of information on the internet and expansion of third party sellers. La Quinta's credit profile has improved over the latest 12 months (LTM LTM abbr. long-term memory ) due to stronger cash flow. As of June 30, 2005, LTM EBITDA/interest exceeded 3.0 times (x), lease adjusted debt/EBITDA was under 4.5x, and free cash flow (cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses less capital expenditures less dividends) was greater than $50 million. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become during this period was $218 million, significantly greater than the same period one year earlier due to the acquisition of Marcus Corporation's limited service business ('Baymont'), the increased number of franchised hotels, and an improved lodging environment. The lodging environment continues to improve as indicated by La Quinta's RevPAR, which advanced 8% in 2004 and is expected to rise by a similar percentage in 2005. Furthermore, the outlook for 2006 is optimistic due to expected GDP GDP (guanosine diphosphate): see guanine. growth of more than 3%, which should lead to increased demand for hotels from business, group and leisure segments. Meanwhile, supply of new hotels is expected to be limited for the next several years with only 1%-2% of new supply per year. The combination of higher average daily rates and higher occupancy rates should contribute to year over year RevPAR growth in the upper single digits in 2006. The Positive Outlook is based on the expectation that La Quinta will continue to benefit from the improving industry fundamentals, maintain a disciplined growth strategy, and gradually strengthen its balance sheet. In the third quarter, $116 million of debt was repaid, which should leave the company with about $809 million of total debt. The company has $20 million of debt maturing in 2006 and $210 million of debt due in 2007. Fitch expects a portion of the debt due in 2007 to be refinanced. Following the $165 million equity offering in May 2005, La Quinta's liquidity is strong with more than $296 million of cash on hand and $130 million of availability through its revolver as of June 30, 2005. La Quinta Corporation is one of the largest owner/operators of limited-service hotels in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , with over 64,000 rooms system wide. At June 30, 2005, La Quinta owned 362 hotels and 45,194 rooms. It franchised or managed 230 hotels and 19,202 rooms. Franchise fee made up less than 5% of revenue Fitch's rating definitions and the terms of use Terms of Use are rules set up by the owner of an intellectual property or service to govern how they may be legally used. In many cases, terms of service are used as a contractual agreement between a company and users of a service they provide. of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures Policies and Procedures are a set of documents that describe an organization's policies for operation and the procedures necessary to fulfill the policies. They are often initiated because of some external requirement, such as environmental compliance or other governmental are also available from the 'Code of Conduct' section of this site. |
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