Elaborating upon the rating rationale, Moody’s said OYO is in the process of securing a new five-year USD 825 million term loan, which together with the USD 174 million of primary equity capital raised between June and August 2024, will be used to repay its existing TLB that matures in June 2026, easing its refinancing pressures.
The proceeds will also fund the company’s proposed USD 525-million acquisition of US-based hotel chain Motel 6.
OYO’s interest expense will decline to around USD 65 million-USD 70 million in FY24-25 from USD 101 million in the previous fiscal year, following the partial repayment of its TLB last year, Moody’s stated.
Ongoing earnings growth combined with lower interest expenses will result in the company becoming free cash flow positive on a full-year basis in FY25-25, after sustaining significant cash burn in recent years, it said.
OYO’s recent acquisitions will also strengthen its business profile by improving its operating scale and geographic diversity while increasing its exposure to developed markets, the rating agency said. “The upgrade follows the proposed refinancing of OYO’s existing term loan B (TLB) through a long-term term loan that will alleviate the company’s refinancing risks,” said Sweta Patodia, a Moody’s Ratings Assistant Vice President and Analyst. We forecast OYO’s EBITDA will reach USD 200 million in FY25-26, which will be its first full year of earnings from the newly acquired businesses, Moody’s said.
It further said the stable outlook reflects its expectation that OYO will continue to generate stable earnings and cash flows such that its credit metrics will remain appropriately positioned for its ratings over the next 1-2 years.
