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MARRIOTT RESTRUCTURING A Written Analysis of a Case by Lloyd Ty Brief Synopsis of Data On October 5 1992 Marriott Corporation announced their plan to restructure the company by splitting itself into two separate companies The first of the two companies Marriott International MI would manage and franchise over 700 hotels and motels In addition it would manage food and facilities for several thousand businesses schools retirement homes and health-care providers On the other hand Host Marriott HM which was the second of the two companies was to own most of the hard assets It would own 139 hotels or motels 14 retirement communities and nearly 100 restaurantsshops at airports and along toll roads The key element in the restructuring plan was that Host Marriott was to keep the debt associated with its assets rounding to about 29 billion Marriott International would then only have modest debt after restructuring Their respective risks as investments were reflected through their new security ratings with HM being rated with a single B by Standard Poors while MI received a rating of single A - both deviating from the pre-restructured companys rating of BBB To help alleviate HMs position MI was to provide a 630 million line of credit to HM though the expiration date of the line was sooner than the maturities of many of the bond issues outstanding On the part of the shareholders of the former company one share of stock in each of the new companies was to be given to them for each share of stock they previously held This announcement caused immediate and opposite price movements for Marriott Corporations stocks and bonds Stockholders were elated with the decision while bondholders were angered particularly investors who bought bonds just that April Nonetheless Marriott management tried to assure bondholders that interest and principal payments would be delivered on time Main Problem How should management its stock and bondholders treat the situation
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