Magazine article American Banker

Hilton Faces Uphill Battle to Finance ITT Takeover

Magazine article American Banker

Hilton Faces Uphill Battle to Finance ITT Takeover

Article excerpt

Hilton Hotels is likely to have a difficult time lining up bank financing to support its $6.5 billion hostile bid for ITT Corp., lenders said Tuesday.

Bankers estimated that Hilton, based in Beverly Hills, would need a loan of up to $7 billion to support its cash and stock offer for ITT. Such a loan would stretch the limits of how much hotel and gaming debt bankers are willing to hold in their portfolios, lenders said.

Indeed, the loan would be the largest ever done in the hotel and gaming sector. "This would strain the capacity of the aggregate market," one syndicated lender said.

Even if Hilton sought considerably less money from banks, it would still face challenges in the syndicated lending market. ITT works with about 60 banks, many of which would be loath to support a hostile bid for the company, lenders said.

Hilton shocked the hotel industry late Monday when it announced an unsolicited takeover offer for ITT. The deal is expected to require sizable bank financing, since Hilton said it would assume about $4 billion of ITT debt.

But hotel loans still bear a stigma similar to that attached to real estate financing-a sector that unhinged the banking industry in the early 1990s.

"Our bank is not all that crazy about hotel financing," said a syndication lender at a foreign bank with a large U.S. presence. "A lot of banks got burned on hotel deals in the past, and while it wouldn't be a real estate deal per se, the underlying assets are mainly hotels."

To be sure, Hilton may choose to rely more heavily on other capital sources, such as the bond and equity markets, to finance its unsolicited bid. Other factors in Hilton's favor include the respect that its president and chief executive officer, Stephen F. Bollenbach, commands in the banking community.

"He's shown in the past that he can get these types of things done," said Andrew Kaneb, a gaming analyst at Deutsche Morgan Grenfell. …

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