) to 'B+' from 'BB-'. At the same time, the rating was removed from CreditWatch, where it was placed on Feb. 5, 2003. The outlook is stable. Total debt outstanding at the end of September 2002 was $5.7 billion.
Standard & Poor's expects the lodging environment will continue to remain challenging throughout 2003. As rates remain competitive and operating costs are increasing, lodging companies are anticipating additional operating margin deterioration. Standard & Poor's expects that operating leased adjusted debt to EBITDA will be just under 7.0 times at the end of Dec. 31, 2002, while interest coverage is expected to be under 2.0 times. Given Standard & Poor's current expectations for 2003, Host's credit measures are not expected to improve to levels consistent with the previous rating during the intermediate term, even assuming some success in selling assets.
The ratings for Host Marriott L.P. and its sole general partner, Host Marriott Corp. reflect the high quality of its hotels, the geographic diversity of its portfolio, its experienced management team and its satisfactory liquidity position. These factors are offset by high debt leverage for the rating and a weak lodging environment resulting from the slowing economy and the terrorist attacks of Sept. 11, 2001.
Host owns more than 120 upscale, full-service hotels, predominantly in urban, airport, and resort locations in the U.S., Canada, and Mexico. Nearly 90% of the company's hotels operate under one of the Marriott International brands. Other brands include Four Seasons, Hyatt, and Swissotel. Its portfolio has good geographic diversification with its largest regional exposure in California (17%) and Florida (11%).
Host's hotels are generally well located and have historically been solid performers in the markets in which they operate. However, hotels that operate in the upscale and luxury segments have been among the most significantly affected by the events of September 11 and the slowing economy. Revenue per available room (RevPAR) for its first 36 weeks ended Sept. 6, 2002, declined 10.4% year over year. This performance is in line with the upscale segment of the lodging industry. For the full 2002, the company expects to experience a RevPAR decline of 4%-5% and generate between $860 million and $875 million in EBITDA.
Host's portfolio is well positioned to benefit as the economy improves, particularly beyond 2003. The slowing growth rate of new hotels and the high barriers to entry for new properties in the urban upscale and luxury markets are factored into this expectation, as is the quality of Host's properties. Standard & Poor's expects that Host's portfolio will generate above-average cash flow growth when the economy gains momentum, likely in 2004.
In June 2002, Host signed a new $400 million revolving credit facility, of which only $300 million is initially available, providing eased covenant restrictions and collateral requirements, and increased availability once leverage levels fall below specified levels. The facility is scheduled to mature in 2005.
At Sept. 6, 2002, the company had adequate liquidity, with nothing drawn under its new revolving credit facility, and $394 million in cash. It does not face material debt maturities until 2005. Additional liquidity could arise from the potential sale of hotels. Capital expenditures are expected to be primarily maintenance related, and share repurchases and acquisition activity is expected to be minimal.
The stable outlook reflects the company's adequate liquidity levels and asset portfolio which is well positioned to benefit once a lodging recovery materializes. The outlook does not factor in a drawn out war in Iraq or significant terrorist activity in the U.S. From Standard & Poor's CreditWire