Marriott International Inc. plans to tap the debt markets again this year to raise funding for upcoming maturities, Chief Financial Officer Leeny Oberg said.
(Bloomberg) — Marriott International Inc. plans to tap the debt markets again this year to raise funding for upcoming maturities, Chief Financial Officer Leeny Oberg said.
The Bethesda, Md.-based hotel operator has $350 million in debt coming due in December, followed by $550 million in April 2024 and around $1.3 billion over the course of 2025. Marriott will likely extinguish some of these debts with cash from operations, Oberg said. But, the company is also looking for opportunities to tap bond investors, she said.
“We will opportunistically raise debt this year to refinance existing maturities as market conditions allow,” Oberg said in an interview.
The Federal Reserve on Wednesday raised the benchmark federal funds rate to a range between 5.00% and 5.25%, but omitted a line from its previous statement in March, according to which the rate-setting committee “anticipates that some additional policy firming might be appropriate.”
Highly rated US companies have an estimated $427 billion maturing in the second, third and fourth quarters of 2023, according to S&P Global Ratings. Next year, $720 billion in US investment-grade debt is set to come due, S&P said. Oberg declined to comment on how much the company would look to raise in the bond market.
Marriott, which has a portfolio of 31 brands and over 8,000 properties around the world, turned to the bond market earlier this year, when it raised $800 million in senior notes with a 4.9% coupon. The company’s weighted average cost of long-term debt currently stands at 4.2% and the average maturity of its debt is almost six years, according to Oberg.
On Tuesday, it reported cash and cash equivalents of $554 million at the end of the first quarter, up slightly from $507 million at the end of 2022.
Marriott “took advantage of easing pressure in the financial sector and positive broader market sentiment” when it brought its bond deal in March, Oberg said.
The company is reducing its reliance on short-term commercial paper due to the increase in financing costs. “When the pandemic started, we had over $3 billion in commercial paper. Now, it’s more like $1 billion to $1.5 billion,” Oberg said. Commercial paper now makes up between 10% and 15% of the company’s debt stack, she said.
“Marriott’s credit metrics are stronger than peers, and management remains committed to its investment grade ratings,” said Jody Lurie, a senior credit analyst at Bloomberg Intelligence. The company over the past year benefited from its return to its pre-pandemic, mid-triple B-rating, which was core to restarting its commercial paper program, Lurie said.
The company’s debt levels ticked up slightly during the past quarter, to $10.7 billion in total debt, up from $10.1 billion at the end of 2022, the company said in its latest earnings release. Marriott spent $1.5 billion on dividends and share repurchases through April 28, and expects to return $3.6 billion to $4.1 billion to shareholders this year, it said in the release.
“From a credit perspective, [Marriott’s] strong recovery and improving outlook has increased management’s appetite for capital allocations — including shareholder rewards and growth opportunities,” analysts at CreditSights Inc. this week wrote in a note to clients.
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