Coronavirus risks grow for key CLO hotel/casino loan obligors

Wednesday 11th March 2020

Large hotel/casino-industry loans with significant exposure to U.S. CLOs have had sharp slides in secondary-market trading due to coronavirus-related event risks.

According to a data analytics research firm Trepp, prices for major term loans issued by operators such as Marriott International, Hilton Worldwide and Caesar's Entertainment have fallen in recent weeks as investors grow worried about the impact of the COVID-19 outbreak on global tourist and business travel.

The $3.1 billion Hilton term loan B2 maturing in 2026, for example, is trading in the mid-$90s range (based on a par price of $100), just weeks after it had been trading at $100.75. A $1.6 billion loan from Wyndham International due in 2025 has fallen to $90 from $96 the week prior, and an $893 million term loan B issued by Marriott Ownership Resorts was trading in the low $90s after trading at par in early February.

"The sudden slowdown in travel activity due to the spread of the coronavirus has notably impacted the hotel chain," Trepp noted for Marriott, including the waiving of cancellation fees for hotel guests in certain affected countries through March 31.

Earlier this week, the trading price for the $4.7 billion Caesars Resort Collection - Term Loan B due in late 2024 had dipped to $90 this week, after trading "roughly" at par through most of 2019. Another casino operator, Penn National Gaming, saw a price decline to $94 this week for its $820 million term loan B that includes CLO investors.

Coronavirus-related risks for U.S. hotel and casino operators represent significant exposure for U.S. CLOs invested in some of the largest corporate loans in the leisure category.

According to Trepp's report, approximately 83% of outstanding CLO deals contain exposure to obligors in lodging and gaming, with an average exposure of 5.2% per deal. That compares to just 2.9% for portfolios with oil and gas industry exposure, the report stated.

"There are about 50 deals for which exposure to [hotel and gaming] is 10% or higher," the report stated.

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