Fairmont San Francisco Hotel to Be Sold for $200 Million

Fairmont Hotels & Resorts Inc. is linking the interest rate of a loan it’s seeking to forthcoming credit ratings, signaling the operator of London’s Savoy and the Plaza in New York is preparing for a bond sale, a person with direct knowledge of the deal said.

The resort chain, used as settings for Alfred Hitchcock films including North by Northwest and Vertigo, has included a so-called ratings grid that would be used to price the $500 million loan when it obtains ratings, said the person, who didn’t want to be identified because the plans aren’t public.

A credit rating would broaden the Toronto-based company’s appeal to international investors and enable it to sell bonds. It last issued convertible bonds without credit ratings in 2003, according to data compiled by Bloomberg.

The loan stipulates that with the lowest investment-grade ratings of Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s, Fairmont would pay interest at 150 basis points more than the London interbank offered rate, the person said.

While Fairmont remains unrated, loan interest will vary from 250 basis points to 450 basis points more than benchmark rates depending on the company’s leverage, or net debt as a ratio of earnings before interest, taxes, depreciation and amortization, the person said. With leverage at 5.5 times Fairmont would pay 450 basis points more than benchmark rates. The margin would fall to 250 basis points if leverage declines to two times.

Mike Taylor, a spokesman for Fairmont Hotels in Toronto, declined to comment.

Citigroup Inc. and Royal Bank of Canada’s RBC Capital Markets are arranging the four-year facility, split into a term loan and revolving credit, which includes a one-year extension option, the person said.

Prince Alwaleed bin Talal’s Kingdom Holding Co. has a 35 percent stake in the hotel chain. The Saudi billionaire cut his holdings from 58 percent two years ago to bring in new investment from Voyager Partners Ltd. and pave the way for an intitial public offering, Alwaleed said at the time.

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