Playa Resorts downgraded
RATINGS AGENCY Moody’s downgraded the corporate rating of hotel operator Playa Resorts, and revised its outlook from stable to negative.
Playa, which is part-owned by Sagicor Group Jamaica, operates hotels in Jamaica, Mexico, and the Dominican Republic.
The resort group’s senior secured term loan due 2024 and its US$100-million revolving credit facility were downgraded from B2 to Caa1, Moody’s said.
On the ratings scale, A is considered investment grade, B is high to moderate credit worthiness, while a grade of C, which is generally referred to as junk or speculative, poses higher risk to investors.
Playa’s debt is estimated at seven times its earnings before interest, taxes, depreciation, and amortisation.
The rating revision comes a week after Playa revised its earnings outlook downwards due to concerns around reduced occupancy at its resorts amid the COVID-19 pandemic.
The Playa stock traded at US$1.88 on the Nasdaq exchange on Wednesday, at the lower end of its yearly range of US$1.72 to US$8.95.
Playa Hotels & Resorts NV manages 23 all-inclusive resorts across three markets. Its top shareholders are Farallon Capital Management, with a 23.1 per cent stake, Sagicor Group, 15.1 per cent, and TPG with 6.6 per cent.
In its rating review for Playa, Moody’s said the rapid and widening spread of the coronavirus, deteriorating global economic outlook, falling oil prices, and asset price declines are creating a severe and extensive credit shock across many sectors, regions and markets.
“The combined credit effects of these developments are unprecedented. The lodging sector has been one of the sectors most significantly affected by the shock, given its exposure to travel restrictions and sensitivity to consumer demand and sentiment. Today’s action reflects the impact on Playa Resorts of the breadth and severity of the shock, and the broad deterioration in credit quality it has triggered,” the ratings agency said.
Moody’s expects that the general hospitality sector to suffer severely across the region with reductions in both travellers and airlift over the next three months, at least, due to the virus. Added to that, Playa’s performance in 2019 was weak and facing tight liquidity conditions into 2020, the agency noted.
“Under the current environment, the company could face higher difficulties than anticipated to adjust costs and capacity, resulting in a more rapid deterioration of its credit profile,” Moody’s said.
Playa recorded a 1.3 per cent decline in occupancy last year, driven by conditions in the Dom Rep market where occupancy fell 13.3 per cent due to safety concerns surrounding alcohol poisoning at resorts.