· I am recommending that we sell Hilton. This is ~2% position in focus equity.
· Given the evolving environment, I think the risk of long-duration, extreme measures to contain the virus globally are rising.
· As a result, while I feel Hilton has enough capital to endure a long global lockdown, and no meaningful debt maturities for several years, it does raise the risk of potentially tripping a covenant on their debt. I think this is remote and very low probability. However, given such a broad sell off, I think there are places we can redeploy the proceeds that have lower tail risk as the situation worsens globally.
· To be clear, I am not seeing anyone sounding an alarm related to their debt. I’ve talked to mgmt. and they are not suggesting this, I haven’t seen any notes from the sell side or any signs in the bond markets that raises my level of concern here. While the spread on their debt has widened, it’s widened less so than issues of similar quality and maturity.
· This move is out of an abundance of caution and is a name we may look to re-enter as we gain more clarity on the current situation.
· For now, we are currently looking at potential new names to add as a replacement.
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$HLT.US
[tag HLT]
[category equity research]