• The hotel and lodging sector is facing an unprecedented freefall in passenger numbers due to the rapid escalation of the COVID-19 pandemic. In addition, our economists are now pointing to a global recession in 2020 which could translate to a financial and liquidity crisis for some companies within the sector.
• Hotels and lodging companies are undergoing acute falls in revenue per available room (RevPar). We believe that asset-light hotel operators' lower fixed costs place them in a better position than asset-heavy operators to withstand these pressures.
• We are therefore revising the outlooks on asset-light operators InterContinental Hotels Group PLC and Accor S.A. to negative from stable and affirming the ratings.
• At the same time, we are downgrading Thame and London Ltd. (Travelodge) and placing the ratings on Casper MidCo SAS (B&B Hotels) on CreditWatch negative.
• We are placing the ratings on Amadeus IT Group S.A. on CreditWatch negative and last week we downgraded the tour operator TUI to 'B-' and placed it on CreditWatch negative because of liquidity concerns.
• Our base case assumes a European RevPar decline of 20%-30% for 2020, with a full recovery only in 2022-2023. We continue to monitor the fast-evolving situation and update our expectations and assessments for European hotel and travel operators.

LONDON (S&P Global Ratings) March 24, 2020--S&P Global Ratings said today that it has taken the following rating actions on five European hotel and travel companies.

We revised the outlooks to negative on Intercontinental Hotels Group and Accor S.A. and affirmed the ratings. We downgraded Thame and London Ltd (Travelodge) and placed the ratings on CreditWatch negative. We also placed the ratings on Casper Midco SAS and Amadeus IT Group S.A. on CreditWatch negative.

S&P Global Ratings acknowledges a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak. Some government authorities estimate the pandemic will peak between June and August, and we are using this assumption in assessing the economic and credit implications. We believe measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers (see our macroeconomic and credit updates here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Rating Actions Rationale

Our rating actions reflect the unprecedented freefall in RevPar among European hotel and travel companies because of the rapid escalation of the COVID-19 pandemic. In addition, our economists are pointing to a global recession in 2020. In the financial crisis of 2007-2008, a 10% decline in the hotel operators' top-lines resulted in about a 20% decline in EBITDA. However, we cannot conclude the same will occur this time round because it is difficult to quantify the length of the current economic downturn.

At this stage, we expect about a 20%-30% decline in RevPar for European hotel operators for 2020, with a severe impact in the first and second quarters due to the lockdown of various European countries and a fall in occupancy rates to almost zero. This translates into negligible or zero bookings, before a modest pickup in the third and fourth quarter. If the pandemic lasts into the third quarter of 2020, we cannot rule out further downside for all these ratings. We will be monitoring the situation closely.

Asset-light operators are better placed than asset-heavy operators

It is difficult to estimate the full effect of the COVID-19 pandemic on our ratings on European hotel and travel companies given that the full scale of the pandemic is unknown. We have therefore taken an incremental approach to rating changes and we continue to monitor the portfolio closely.

Generally, we have observed asset-light lodging and travel companies showing more resiliency than players that are asset-heavy, given the former's lower fixed cost base.

We have revised the outlook to negative on asset-light operators Intercontinental Hotels Group and Accor, based on their more favorable cost structure.

Asset-heavy operators bear the burden of high fixed costs such as rents, staff costs, and overheads that are difficult to amend in a downturn. Operators focused on a single country may be in an even worse position. We have therefore downgraded Thame and London (Travelodge) to 'CCC+' from 'B-' and last week we lowered TUI to 'B-' from 'BB-'. We have placed both companies on CreditWatch negative. We have also placed Casper (B&B Hotels) on CreditWatch negative.

In the very short term, liquidity is more critical than leverage in our assessments

While leverage is a key component of our ratings, maintaining enough liquidity to withstand working capital swings is critical for a company to remain a going concern in the very short term. Some companies are already taking strict measures to maintain liquidity. For example, we expect TUI would be looking into renegotiating its contracts with third-party hotels.

Also, some of these companies, depending on the duration and severity of this crisis, may need to bolster their liquidity reserves. This is the case for Amadeus, for example, which is in the course of putting in place additional bank facilities to ensure the payments of debt maturities due in the next six-to-12 months.

Hotel operators' cost controls and financial policy decisions are more crucial than ever and a key factor in determining whether they will be able to preserve cash. We expect that companies in this industry will halt shareholder-friendly measures such as dividends and share buybacks and that they will delay any non-essential capital expenditure. Such measures will help hotel and travel companies somewhat mitigate the expected working capital cyclicality in the upcoming quarters.

In the medium term, the speed of the industry's recovery, the potential rebasing of the industry, and the damage done to capital structures will drive ratings

The present crisis is expected to have material short-, medium-, and long-term consequences for the industry and for our ratings. In the short term, liquidity is the primary concern and the major ratings driver. In the medium term, our primary concern is the duration and severity of this crisis, particularly if the latter extends more profoundly into the second half of this year. This could have further deleterious consequences for the performance and financial profiles of companies and pose risks to our current ratings, even after today's rating actions. Over the longer term, we see high uncertainty as to the speed and extent of the industry recovery. In particular, it is not a foregone conclusion that the travel industry will come back at the same trading levels as before the crisis because we may see changes in behavior from individuals and businesses. Furthermore, for some issuers in the travel industry, the current crisis may result in a depletion of their equity reserves and a releveraging of their capital structures beyond their means. Those companies may need a recapitalization. The effect on our ratings will be a function of all these factors. We will update our ratings as the pandemic unfolds.

Related Criteria

• General Criteria: Hybrid Capital: Methodology And Assumptions, July 1, 2019
• General Criteria: Group Rating Methodology, July 1, 2019
• Criteria | Corporates | General: Corporate Methodology: Ratios And Adjustments, April 1, 2019
• Criteria | Corporates | General: Recovery Rating Criteria For Speculative-Grade Corporate Issuers, Dec. 7, 2016
• Criteria | Corporates | Recovery: Methodology: Jurisdiction Ranking Assessments, Jan. 20, 2016
• Criteria | Corporates | General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014
• Criteria | Corporates | General: The Treatment Of Non-Common Equity Financing In Nonfinancial Corporate Entities, April 29, 2014
• Criteria | Corporates | Industrials: Key Credit Factors For The Leisure And Sports Industry, March 5, 2014
• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013
• Criteria | Corporates | General: Corporate Methodology, Nov. 19, 2013
• General Criteria: Methodology: Industry Risk, Nov. 19, 2013
• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities, Nov. 13, 2012
• General Criteria: Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings, Oct. 1, 2012
• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

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