OREANDA-NEWS. Fitch Ratings expects to assign a 'BBB' rating to Marriott International Inc.'s (Marriott) proposed \\$600 million issuance of unsecured notes. The Rating Outlook is Stable. A full list of rating actions follows at the end of the release.

Marriott will issue \\$600 million of notes split between five-year and 10-year tranches, with coupon rates to be determined. The notes will be issued under its existing indenture dated Nov. 16, 1998 and rank pari passu with all of Marriott's existing senior unsecured debt. Marriott is obligated to repurchase the notes at 101% of par upon change of control, defined as a transfer of more than 50% of voting stock, subject to a ratings-based trigger. The notes will not contain any financial covenants, similar to Marriott's existing bonds.

Marriott will use the proceeds for general corporate purposes, which may include repayment of a portion of its current commercial paper (CP) outstanding. Marriott had \\$1.21 billion of CP outstanding at June 30, 2015

Fitch expects the issuance to be completed on a leverage-neutral basis, with Marriott essentially refinancing a portion of its CP borrowings with longer tenor unsecured bonds. Marriott remains committed to its 3.0x to 3.25x adjusted leverage target, which Fitch views as appropriate for Marriott's 'BBB' IDR. Fitch calculates Marriott's consolidated lease adjusted leverage at 2.8 times (x) for the trailing-12 months (TTM) ended June 30, 2015.

KEY RATING DRIVERS

The ratings and Outlook reflect Fitch's positive near- to intermediate-term view towards lodging industry fundamentals. Strong corporate and leisure transient demand and limited new supply support Fitch's base case scenario of 7% U.S. industry-wide RevPAR growth in 2015.

Fitch expects Marriott's system-wide RevPAR to grow at a rate similar to our industry wide 7% projection for the U.S. The company has guided for a range of 5.5% - 6.5% system-wide RevPAR growth in 2015 in North America and 4.5% - 5.5% overseas.

Marriott had \\$140 million of cash and \\$789 million of availability under its revolving credit facility (total capacity of \\$2 billion less \\$1.21 billion of CP outstanding) that supported its liquidity position at June 30, 2015. Fitch expects Marriott to generate free cash flow of roughly \\$400-\\$500 million in 2015 and 2016. Despite the potential for increased investment spending, this should provide financial flexibility for continued share repurchase activity.

The 'F2' short-term IDR and CP ratings reflect Marriott's 'BBB' long-term IDR, strong cash flow generation and liquidity profile. Further, the short-term and long-term IDRs are supported by the company's capital recycling business model, which provides solid financial flexibility with respect to discretionary capital outlays.

KEY ASSUMPTIONS
--U.S. lodging industry RevPAR growth increases by 7% during 2015 and decelerates, but remains positive, to the mid-to-low single digit range for the balance of the forecast period.
--Fee revenue grows in-line with Gross Potential Revenue (GPR is a Fitch estimate of total system-wide room revenue from which Marriott can receive fees). 2015 GPR is based on 5-7% net supply growth and mid-single digit RevPAR growth, resulting in low double digit increases through 2017.
--Franchise fees as a percentage of GPR increase due to limited service additions in North America that are weighted towards the franchise model, as opposed to managed or owned.
--MAR returns its excess free cash flow to shareholders through dividend increases and share repurchases, regulating the latter to maintain at or near Fitch's 3.0x leverage target at the 'BBB' rating.
--Fitch's ratings do not contemplate that MAR undertakes a 'transformative' acquisition.

RATING SENSITIVITIES

--Fitch would consider taking a positive rating action if Marriott explicitly guides to a more conservative policy that includes a stated leverage target below 3.0x. At this point, however, Fitch believes it is unlikely given the potential growth opportunities in the lodging industry over the next few years and Marriott's historical financial policies.

--Fitch expects management to support its balance sheet at a level commensurate with a 'BBB' rating. If management changes its financial policy and opts to maintain leverage at a level higher than 3.0x, Fitch would consider taking a negative rating action.

--In the event of a significant downturn, Marriott could maintain its current rating if it pulled back on investment spending and share repurchases and reduced its CP balance. A negative rating action could take place if Marriott chose not to adjust its capital allocation in a downturn scenario.

--A negative rating action could also occur if a downturn is more severe than Fitch's stress case scenarios, which contemplates industrywide RevPAR declines of 13-15%. Due at least in part to the more attractive supply growth environment relative to the last recessions, Fitch believes RevPAR declines would be somewhat less severe than the 20% declines experienced in 2008 to 2009.

--Marriott's 'F2' short-term rating is supported by its back-up liquidity coverage from its RCF and sufficient internally generated sources of liquidity to amply cover near-term debt service. If these liquidity measures deteriorate over time, there could be pressure on the 'F2' rating.

Fitch currently rates Marriott as follows:

--IDR 'BBB';
--Short-term IDR 'F2';
--Commercial paper 'F2';
--\\$2 billion unsecured credit facility 'BBB';
--\\$2.6 billion (excluding proposed issuance) senior notes 'BBB'.

Marriott RHG Acquisition B.V.
--Short-term IDR 'F2';
--Commercial paper 'F2'.