Caesars Palace owner’s debt downgraded

John Wilen

Thursday, Oct. 8, 1998 | 12:07 p.m.

Standard & Poor's has lowered its ratings on ITT Corp. and Caesars World Inc. debt, citing a number of factors including a tightening Las Vegas market. Caesars Palace and the Desert Inn on the Strip are controlled by Caesars World.

"The Las Vegas market will be impacted next year as four new mega resorts are added on the Strip," said Standard & Poor's in a release.

The credit rating agency lowered ITT senior unsecured debt to double-B from triple-B, and lowered its rating on Caesars World subordinated debt to single-B-plus from triple-B-minus.

ITT's triple-B corporate credit rating, preliminary triple-B/triple-B-minus shelf debt rating and A-2 commercial paper rating, as well as Caesars World's triple-B corporate credit rating, were withdrawn.

All of the ratings were removed from Credit Watch. The rating actions reflect Starwood's acquisition of ITT earlier this year, said Standard & Poor's.

Starwood stock fell $1.69, or 7.9 percent, to $19.56 in early afternoon trading today.

Starwood has several well-recognized brand names -- including Caesars, Westin, Sheraton and Four Points -- and is globally diverse, said Standard & Poor's. But the company is also highly leveraged, is pursuing an aggressive share repurchase plan and continues to face "challenges" related to the ITT acquisition, said the agency.

More importantly, said Standard & Poor's, Starwood faces "potentially more difficult business environments in both the gaming and lodging sectors."

"Demand is cyclical," said the agency, "and cash flow will fluctuate if business and leisure travel decline."

Standard & Poor's singled out the Las Vegas market as one where Starwood will likely face problems. Though Caesars Palace is a market leader, the new resorts coming online over the next couple years will clearly impact the Starwood resorts here, said the agency.

Still, said Standard & Poor's, "the company's geographic diversity, lack of asset concentration, and increasing management income help mitigate potential economic downturns."