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Accor: On Its Way To 200bps?

20 October 2014 by lberuti

Last week, ACCOR ( Accor SA ) was rumoured to have submitted a non-binding offer for Starwood’s Louvre hotels. The latter is a European budget hotel chain. It could be worth somewhere between €1.2bln and €1.5bln. Analysts reckon this acquisition would fit ACCOR’s strategy and would represent an interesting use of the cash they are currently sitting on. But for credit holders, there is a glitch. ACCOR is currently rated at the lowest investment grade level and have very limited headroom under the company’s current BBB- rating category. In all likelihood, unless they go down the route of a massive right issue, they will be downgraded to junk if they end up buying Louvre. In iTraxx Crossover, TUIGR ( TUI AG) is trading at 330bps and SOLSM ( Melia Hotels International SA) at 425bps. Accor has more hard assets than TUIGR and a better balance sheet than SOLSM, so in any case it would probably not trade that wide, but a risk premium in the 200/250bps region is a distinct possibility. ACCOR’s 5 year CDS has already reacted to the news, but, with spreads between BBB- and BB at multi year highs, it will continue its march wider if the acquisition of Louvre is confirmed.