Hilton Faces Uphill Battle To Finance ITT Takeover

Hilton Hotels is likely to have a difficult time lining up bank financing to support its $6.5 billion hostile bid for ITT Corp., lenders said Tuesday.

Bankers estimated that Hilton, based in Beverly Hills, would need a loan of up to $7 billion to support its cash and stock offer for ITT. Such a loan would stretch the limits of how much hotel and gaming debt bankers are willing to hold in their portfolios, lenders said.

Indeed, the loan would be the largest ever done in the hotel and gaming sector. "This would strain the capacity of the aggregate market," one syndicated lender said.

Even if Hilton sought considerably less money from banks, it would still face challenges in the syndicated lending market. ITT works with about 60 banks, many of which would be loath to support a hostile bid for the company, lenders said.

Hilton shocked the hotel industry late Monday when it announced an unsolicited takeover offer for ITT. The deal is expected to require sizable bank financing, since Hilton said it would assume about $4 billion of ITT debt.

But hotel loans still bear a stigma similar to that attached to real estate financing-a sector that unhinged the banking industry in the early 1990s.

"Our bank is not all that crazy about hotel financing," said a syndication lender at a foreign bank with a large U.S. presence. "A lot of banks got burned on hotel deals in the past, and while it wouldn't be a real estate deal per se, the underlying assets are mainly hotels."

To be sure, Hilton may choose to rely more heavily on other capital sources, such as the bond and equity markets, to finance its unsolicited bid. Other factors in Hilton's favor include the respect that its president and chief executive officer, Stephen F. Bollenbach, commands in the banking community.

"He's shown in the past that he can get these types of things done," said Andrew Kaneb, a gaming analyst at Deutsche Morgan Grenfell. "People have complete confidence in him."

Mr. Bollenbach may also benefit from good timing, some bankers said. The bank market is hungry for a blockbuster deal, considering that most institutions have started 1997 with loan budgets at least as big as 1996, which was a record year.

"Given how little there is to do right now, the banks are very hungry and will relate to the credit," one banker said.

Mr. Bollenbach's team is "one of the most astute in the world," another banker added. "No way he'd launch a deal hoping that someone might lend him the money and underwrite his bond some time down the line."

Bankers said BankAmerica Corp., Bank of New York Co., J.P. Morgan & Co., and Wells Fargo & Co. were the most likely to play prominent roles on a Hilton loan. That group jointly led a $1.75 billion deal for the hotel chain last fall.

But New York-based ITT has its own stable of prominent banks. It enjoys strong relationships with NationsBank Corp., Citicorp, and Royal Bank of Canada. These banks and a number of others were prominent lenders on a $3 billion Chase Manhattan Corp.-led deal for ITT last year.

They also provide lucrative foreign exchange, cash management, and hotel financing services to ITT.

Some bankers said they were put off by comments Mr. Bollenbach made to the press Monday regarding the bank loan market.

"I cringed today when I read that Bollenbach wants to use the 'easy credit market' to acquire core hotel assets," said a loan syndicator.

If a deal on the scale of $7 billion were done for Hilton, it would be the "defining deal" of 1997 from a real estate perspective, said a lead banker in that sector.

"I question where there is $7 billion in liquidity out there for hotel financing," he said. "There are fewer banks in that market than in the general corporate market."

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