Any Reservations For Park Hotels’ New Note Sale?

Park Hotels & Resorts (NYSE: PK) was set Tuesday to sell US$500m worth of new notes to bolster liquidity, as corporate bond investors continue to snap-up deals despite fundamental credit concerns.

The Virginia-headquartered, hotel-focused real estate investment trust (REIT) entered the primary market with a fresh, senior secured debt offering, as the firm – and overall U.S. hospitality industry – suffers from ongoing Covid-19-inflicted travel restrictions and related plunge in tourism.

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Hospitality and lodging stocks suffer pandemic related downturn

Park Hotels said it intends to use the proceeds from the sale for general corporate purposes, as well as to repay amounts outstanding under its fully drawn US$1bn revolving credit facility, amid still ultra-low U.S. interest rates.

The yield on the 10-year U.S. Treasury note was last bid at around 0.705% – a decline of roughly 118 bps since the start of the year.

Park Hotels’ issuance also falls amid a recent spike in U.S. corporate bond market activity – especially after the Federal Reserve rolled out a series of unprecedented measures to support credit, as well as the broader economy and financial system, in the wake of the novel coronavirus-led lockdowns.

The latest debt offering from Park Hotels joins a growing list of other issuers, such as cruise line operator Carnival Corp (NYSE: CCL) and Marriott International (Nasdaq: MAR), whose creditworthiness has been increasingly pressured by government-mandated policies to contain the spread of Covid-19.

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corporate bond issuance surges in 2020 YTD YoY

Over the past three months, five-year credit default swap (CDS) spreads on Carnival, for example, have blown out by more than 1,030 basis points to just north of 1,179.5 bps, while costs for credit protection against Park Hotels has suffered a 256 bp-rise to 371 bps.  

Hotel Reservations

Indeed, Park Hotels’ debt-fueled funding appears to exemplify the need to sustain operations in the hospitality business, amid the threat of a complete collapse in U.S. occupancy rates and associated revenue per available room (RevPAR).

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The author does not hold any positions in the financial instruments referenced in the materials provided.

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