We are once again seeing businesses test the market by providing a variety of debt offerings that have not been seen since before the economic downturn in 2007. It now appears that Blackstone is making a public offering in the amount of $13.5 billion regarding the refinancing of Hilton Hotel Corps, one of the largest hotel chains in the world. At least $3.5 billion of that public offering will include commercial mortgage-backed securities.
This debt offering is considered the biggest to take place in about six years. The debt offering is called more traditional than prior attempts of Blackstone to buyout the Hilton chain. The current refinancing concerns what is described as "pure" commercial mortgage debt that will come from revenue of the properties. Other debt will be refinanced in other markets and by various other means.
It has been reported that Blackstone's restructuring of the hotel's debt has turned around the hotel's performance. Hilton has constructed an additional 1,100 hotels since 2007.
Great care will need to be taken by Blackstone in the issuing of these securities. The commercial real estate market is still volatile and a rise in interest rates can always result in more defaults. This may be in part why Blackstone has retained a number of high-profile banks to manage the initial public offering of Hilton and why the entire transaction is so seemingly complex.
When speaking of refinancing in this amount, imagine the difficulties Blackstone would face if the debt is not fully paid back. The attorneys working for Blackstone will have to provide any number of legal options available for the company should problems of this type arise. While all commercial debt refinancing will involve certain difficulties, many companies are willing to take the risk. Companies do not involve themselves in financing such public offerings without anticipating a decent return.
Source: New York Business Journal, "You haven't seen a debt offering this huge since the 2008 meltdown," Sep. 11, 2013