S&P downgrades Accor to junk as virus upends hospitality industry
The cut to BBB- with a negative outlook is set to cost the company tens of millions of euro in additional interest payments
Paris/London — Accor has been downgraded to junk status by ratings agency S&P Global, a decision set to cost the company tens of millions of euro in additional interest payments, as travel restrictions dim the outlook for the operator of Ibis and Sofitel hotels.
S&P cut Accor’s credit rating to BB+ from BBB- and left it with a negative outlook.
“We now anticipate weaker earnings and debt metrics in 2020 and 2021,” S&P wrote, citing the effects of the Covid-19 pandemic on travel and the economy in general.
The decision strips Accor of its investment grade status, even though it has a BBB- rating with Fitch, and means it will have to pay additional interest on some of its debt.
A company spokesperson confirmed there would be a “coupon step-up” of 125 basis points on a number of its bonds with maturities spanning February 2022 to February 2027.
This means Accor’s interest bill will rise by about €82m over the period, according to Reuters’ calculations; a figure the company confirmed was broadly accurate.
It is not unusual for companies to include coupon step-ups to placate investors worried about a downgrade to junk, which can cause bonds to fall in value as they are booted out of widely tracked investment-grade indices.
The number of companies or countries at risk of having their credit ratings cut has been pushed to an all-time high by the pandemic, an S&P Global analysis showed in May.
Accor posted a first-half loss of €227m and said it planned to cut 1,000 jobs as it seeks €200m in annual cost savings.
Its shares were trading broadly flat at 1pm GMT, while some of its bonds jumped in anticipation of the extra coupon payments. The January 2024 bond rose 1.28c on the euro to a cash price of 97.99, its highest since mid-March.
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