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Derivatives

Hilton Hotels' Spread Widens In Wake Of WTC Attack

Five-year credit default protection on Hilton Hotels Corp. widened 300 basis points last week to about 500bps, as the market braced for a massive slowdown in the gaming and lodging sector prompted by a growing worldwide fear of traveling for both business and leisure. Prior to the Sept. 11 attack on the World Trade Center, credit default protection on Hilton Hotels was around 180-200bps. U.S.-based traders said volumes were more than three times the average for this time of year. The typical size of the trades was USD5-10 million. Similarly five-year credit default protection on Park Place Entertainment, formed two years ago when Hilton Hotels split its gaming and lodging divisions into two separate companies, widened to 330bps from 130bps. "People are just not flying on business trips or vacations. A real fear of flying has gripped the globe and its having a major impact on the gaming and lodging industry," said one U.S. credit-default swaps trader.

According to Eric Stephenson, gaming and lodging analyst for Fitch in New York, the World Trade Center attack combined with the existing difficult conditions facing the lodging industry because of already declining revenues will have a significant negative impact and there are limited prospects for recovery in the foreseeable future. With leisure and business travel plummeting Fitch expects Hilton Hotels to face severe falls in both occupancy and daily rates, resulting in dramatic declines in revenue per room. Fitch rates Hilton's senior unsecured debt triple B minus.

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