NEW YORK -- Standard & Poor's Corp. said yesterday that it will lower its rating on Marriott Corp.'s $2.7 billion of bonds six notches, to the category of junk bonds, if it becomes clear that the hotel company will proceed with its controversial restructuring plan.
After the hotel company announced last month that it planned to split in two, S&P said it would downgrade Marriott's bonds but didn't say by how much.
Marriott's restructuring would leave Marriott International Inc., including the company's lodging, food, facilities management and senior living service operations, with a clean balance sheet. A weaker concern, Host Marriott Corp., consisting of real estate and airport and railroad concessions, would be saddled with the company's debt.
The threat of a downgrade "reflects Host Marriott's far weaker business position, heavy debt burden, and much reduced cash flow," said Robert Nelson, an S&P analyst. Marriott had no comment.
S&P said yesterday that it would cut its rating on Marriott's senior unsecured debt, which includes most of the company's publicly-traded bonds, to "B" from "BBB." Bonds rated below "BBB-" are considered junk.
Moody's Investors Service, the other major bond-rating agency, downgraded Marriott's bonds to "Ba2" from "Baa3" last month and said it might lower the rating more. Wednesday, Duff & Phelps Credit Rating Co. lowered its rating on Marriott to "B" from "BBB."
Analysts' downgrades signify a greater risk with owning Marriott's bonds because the company might have more difficulty paying its debts. Downgrades typically cause bond prices to tumble.
Marriott's proposal has generated outrage from bondholders, who have organized to block the plan.