For Marriott, it will be a year of transition


January 03, 1993|By Ellen James Martin

Facing a legal battle royal with its bondholders -- including some of the nation's biggest and most influential institutional investors -- the Marriott Corp. looks to 1993 as a crucial year of transition.

The controversy began Oct. 5 when the Bethesda-based hotel and service giant announced it would split into two in June 1993. That move would give the new company, Marriott International Inc., a virtually clean balance sheet and would leave the old company, renamed Host Marriott, with almost all of Marriott's real estate and $2.9 billion in debt, including its bond issues.

The announcement of the split drove the value of Marriott bonds down 30 percent, and brought an uproar from bondholders. Loading the debt onto Host Marriott made the gilt-edged bonds into "junk," despite promises that Host Marriott intended to meet its obligations to pay interest and principal.

Analysts believe that Marriott will not back down from its restructuring plan.

But the company did agree last week to open discussions with bondholders over "refinements" to its plan.

If the talks break down, Marriott is prepared for court challenges.

Despite the legal challenges facing Marriott, "the focus on '93 is really on business as usual," says Laura Paugh, senior director of investor relations. Given the improving economy and the virtual halt in new hotel construction in recent years, "we see a real upside for hotels," she said.

But Marriott promises to shy away from investing heavily in real estate, and will minimize ownership risks by placing a heavier emphasis on franchising hotel operations.

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