Continental breakfast? Attempt at covenant/fundamental breakdown: MAR : wallstreetbets

Continental breakfast? Attempt at covenant/fundamental breakdown: MAR : wallstreetbets

Ok listen up retard, with Fuzzy blessing you guys with his bombs of knowledge on how to breakdown covenant requirements on indebtedness for dog trash companies, I thought I would attempt the same at a company everyone would agree is far from suffering, but amidst an industry that is really suffering.

I won’t pretend I have the writing skills of our friend /u/fuzzyblankeet but I will at least try to do a half decent quick rundown of Mariott’s liabilities. Now I will be honest with you guys, I have a feeling Mariott’s going to be a really fucking hard company to analyze, I’m writing this before even opening the 10K report, hoping that they are at least smart enough to rationalize all their debts within the same country, since when you have a favorite strip club to go to, why change?

Full disclaimer, I’m completely allowed to get all this shit wrong, since I’m not a lawyer, and I couldn’t give a shit less about sharing wrong information on this sub, because half the technical analysis on here are a bunch of turnips. Enough said, I will try to bookmark my shit, use the right terms, and you get the picture, if you aren’t bored by now, wait till I start going through these stupid SEC filings. Also I’m full on plagiarizing Fuzzy’s post, but hey sue me. (not really though)

Some music (Yeah I fucking plagiarized his music also, sue me.)

$MAR 2020 10K reports

Amendment #5 to credit agreements

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I’m actually proud I made it that fucking far. This is great, they essentially have a bank syndicate of all the fucking banks of the world, this is going to be so easy. I’m already fucking regretting my choices, Should’ve went with $SNAP.

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Fundamentals

Summary

  • Mariott owns a variety of hotels going from residence inn to the Ritz-Carlton. Obviously diversified in their industry, but hey guess what, If hotels aren’t the best places to catch 🍺 🦠 I don’t know what is.

  • They’ve been victim of a data breach incident, no one really cares but hey, its in there.

  • They have 2144 properties, a total of 585K rooms and some of these are under lease agreements, they also manage some home and condo communities. Most likely this segment is less exposed than the rest.

  • These fuckers also receive royalties from a Timeshare corporation that they spun off, so whenever you get harassed by timeshares, think that the fuckers from Mariott are also behind it, they really do dip their toes in everything.

  • They are not greatly dependent on seasonality, mostly because they are fully diversified and do not only procure hotel for vacationing but mostly also for business, this is great in normal situation, but with the 🍺 🦠 you can expect business travel to be the most affected. Companies might never go back to the level of business travel that they had before now that they can taste the sweet economies of $ZM, $MSFT, or $CSCO meetings.

  • 66% of their Revenues are from North America, I would assume mostly USA since Canada really is a crappy country to visit, even for business, I know I live there. According to them they have 16 percent share of the US market.

  • They have roughly 174K employees, with roughly 22K who are unionized, this is good means they don’t have to deal with the load of bullshit union agreements that create problems when trying to fire employees, which means they have some room to reduce operating cost.

  • Really interesting bit of information: “In addition, U.S. government travel and travel associated with U.S. government operations are a significant part of our business, which can suffer due to U.S. federal spending cuts, government hiring restrictions, or other spending limitations that may result from presidential or congressional action or inaction, including for example, a U.S. federal government shutdown, such as the partial shutdown that occurred in December 2018 and January 2019.” Normally, when companies have to identify that they have risk and uncertainties and exposure to specific industries, it means it could significantly impact Revenue. Hint hint.

This is turning into much more of a fundamental analysis than I want, this is suppose to be about indebtedness god dammit, but that last thing i’ll say is the following. Remember how I said that North America was roughly 66% of their Revenue? Well they are expecting to grow their business based on their international business, it isn’t impossible that other countries are less lenient than the USA following this crisis, which could add rules surrounding the industry, further impeding their chance of growing their company.

Key financials

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Revenues

  • $3,7M of Net fee Revenue in 2019, up 5% from 2018

  • $1,6M of Owned leased and other Revenue (prety much garbage bin of Revenue)

  • Theres this whole thing about Cost of Reimbursements Revenue, its not important its mostly bullshit and its a non cash item, for you autist non cash in income statement = some accountant is having an orgasm but you don’t care**.**

EBIT

  • They generated 1,8M of EBIT in 2019, and $2,3M of EBIT in 2018.

Yeah I know, you just learned about EBITDA and now I’m talking about EBIT, in real estate industries or hotel industries for that matter, some accountant decided it was meaningful to add depreciation and amortization to the main income measure, considering its predominantly real estate, so its non cash but actually important, the opposite of what I said of the other elements, sue me.

Fundamental summary

Overall what does this tell us? Mariott has healthy margin, especially considering they are in the hotel industry, you can really tell they are screwing their clients and you can understand why AIRBNB was allowed to exist. Goddamn 30% EBIT from 5.1B in the real estate business, thats more than your ISP makes off of your internet connection god damnit. So even though Hotels are a killer hard industry… Hotels man… Mariott is as solid as it gets.

They are facing serious pressure though for the future considering Revenues are about to shoot down significantly, expenses can’t be completely mitigated as some of it is amortization (non cash can’t do anything going to hit your P&L what ever you do except if you sell it, but who buys fucking hotels…), but they should be able to reduce their operating expenses temporarily by shutting down services to customers etc…

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$MAR Debt (The boring part)

Before I get started, I really have nothing to say but I’m already fucking tired of doing this analysis, I have the attention span of a hamster and I’m only thinking about when I’ll be able to go out of the home and exercise, I also don’t know why I chose to do this instead of playing video games, but w/e.

So listen to fuzzy, Ctrl+F credit agreement in the 10K, and the first thing you find is note 9. The long-term debts. Now I know we are looking for short term debts, but short term portions of long term debt agreements are usually included in this section.

Well you can already close your computer and stop this analysis, because they issued a bunch of Senior notes and its fucking a load of crap to deal with, so take that drink and slam it onto your face.

Senior notes

I’ll already say I’m sorry, I’m going to keep this portion really simple, not because of the people reading, but because I got no fucking clue how to properly analyze those senior notes, where to go to find the underlying agreements, and I just don’t really care enough to do it because I can already draw a conclusion from this analysis, and its that the indebtedness portion of it is fucking useless, this company is so goddamn solid.

Anyway, lets look at the interest rates, they all vary greatly so its hard to paint a clear picture without doing a very large deep dive, it looks like they also practice SWAP on interest rates to transform fixed rates into variable rates. I know its fucking complicated. Essentially they obtain Fix rates Senior debts then they find someone thats willing to take that fixed interest rates, pay them that amount, while $MAR has to pay the variable rate agreed to, usualy LIBOR + Something, in this case there is an example of LIBOR + 0,754. That’s going to be prety good when interest rates go to 0. Cheap credit!

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So looking at Senior notes, they make things easy for you autists by combining the principal reimbursements Only $977M is due in 2020, and $1,1B in 2021. That really isn’t bad we are talking roughly $2B of cash outflow obligation or refinancing obligation in 2020 and 2021.

Like I said, we could continue for hours and analyse all senior notes, but I don’t think its relevant for drawing a conclusion, please roast me if I’m wrong /u/fuzzyblankeet

Commercial papers

Oh god damnit, its not enough they have fucking Notes, they also have goddamn Commercial papers, help me….. Oh but lordy lord this is where we actually find meat on the bone. Let me quote this right out of the 10K because its too goddamn juicy.

” As discussed in Note 9, even though our commercial paper borrowings generally have short-term maturities of 30 days or less, we classify outstanding commercial paper borrowings as long-term based on our ability and intent to refinance them on a long-term basis “

So what does this mean? Well essentially $MAR has a rolling credit card on top of their Revolver that was at $3,2B by the end of 2019 this Credit card is owed 30 days after issuance in average, but because accountants are moron they let Mariott classify this as long term, because they can refinance it easily. Well not anymore baby. The carrying amount from 2018 was $2,2B which means they had to increase this by $1B for 2019 activities.

Lets try to find more information on these beautiful things. I dint find much to be honest, but based on their definition and what they do with the Commercial paper it is clear that they rely on their Clint Eastwood gun to cover for these Commercial papers if they can’t refinance. So lets assume their balance was $3,2B by the end of Q1 for the sake of simplicity, and lets apply that balance to our other line of credit.

Revolver

Hey, Mariott also have a pistol, their pistol is quite more significant than the one from $SEA though, their Pistol is for $4.5B. They have drawn absolutely 0$ from their pistol, but remember shit we said about the commercial papers? Thats right, we have to assume that they actually drew $3,2B from their weapon. 4.5B doesn’t look like alot anymore, but surely they can refinance their obligations in other ways right?

LETS SEE!

Negative covenant!

/u/fuzzyblankeet send help

I guess the most important is the only thing they can secure for financing is a total $750M Additional to the carabine of $4,2B.

The other important thing is although the main way to get credit for you mere mortal is to get a mortgage on your house, it looks like this credit agreement is essentialy saying they can’t get a mortgage on anything, not even on the plants outside their properties.

All other negative covenants are essentialy saying that they can’t get cash out of the company, merge, unmerge, selloff, etc…. can’t sell major portion of their business etc…. Essentialy yeah like they can’T do anything.

Honestly at this point I really just want to shoot myself, these goddamn Negative covenant terms essentially say they can’t do anything but also I don’t know what they can actually do because who the fuck knows what this is saying. /u/fuzzyblankeet you can definitely roast me on this one.

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Affirmative covenants

The only important covenant that I see there is that they have to maintain a leverage ratio no greater than 4 to 1. Within the agreement here is how they define the “leverage ratio” Adjusted debt / consolidated EBITDA. Great we have the calculation right? WRong… this is a fucking legal document remember, we need to know how to calculate the adjusted debt.

I won’t paste the whole thing in here but essential here is how you calculate adjusted debt based on their agreement

  1. Total of debt for borrowed money (Everything owned basically, notes and all) +

  2. Guarantees exceeding $500M (So total guarantees – $500M) FUCK MORE WORK

  3. Net cash proceeds when they purchase something material (understand here materiality in the sense of something important), so this really isn’t that important I don’t think they have anything in there, if they do well fuck me

Great, so we are done right, well kindof we have to calculate that goddamn shit. First off is the consolidated EBITDA, yeah cause, who the fuck doesn’t use EBIT when they report on it, lets add Depreciation and amortization.

Consolidated is EBITDA for 2019 is 2,1B. Just trust me this post is already long enough.

Adjusted debt is (back to note 9, also fuck my life.)

  1. $10,9B

  2. 0. Looks like they have $354M of Gurantees, so we are in the clear for this

  3. 0. I’ll just assume this is 0 because fuck that.

So based on this, their Leverage Ratio is “drum roll”, 5.19

ERM Yeah… They were sitting at 3,72 in 2018, and somewhere in 2019 they blew over the requirement of 4 to 1 what does this mean??? Well remember our $3.2B of amazing commercial paper, + the repayment of $977M in 2020? Well the bank syndicate could refuse to give them the money based on the breach of their affirmative convenant

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Conclusion

$MAR need to find roughly $4,2B in 2020, with potentially more cash outflow than cash inflow. Let’s say occupancy is at roughly 30% for 6 months, this would drive their revenue down by ~60%, which means they would be down from $5,3B to $2,12B.

With outstanding efforts, lets say they can reduce their operating cost by roughly 50% (optimistic), this would bring their total cost of operating down by $1B, so their total impact on operating income would be -$2B out of their $2,1B of EBITDA. Which means they would be generating roughly $250M of EBITDA per yeat. Ouch… They won’t be getting cash that way.

So I think its safe to say we can short $MAR to oblivion? Yeah no, not so fast. This industry WILL get bailed out by the government, there is so much real estate associated with it, surely there is still alot of value in this buisiness, who knows what the impact on equity will be from this bailout. I’ll let you draw your own conclusion as to what the moves you need to do for this are, but by the looks of this they are in dire need of short term cash to repay their obligations.

/u/fuzzyblankeet please don’t hesitate to say how much of a retard I am and how I got everything wrong, I have a feeling my Adjusted debt calculation is wrong, but I’ve revisited it so much + the fact that 2018 was actually below 4 to 1 gives me confidence.

Let me know 🙂

TL/DR; MAR will struggle to repay their short term obligation unless they go through a new financing agreement / bailout.

**EDIT** To all you kids reading for 2 minutes and then complaining about the post, you try a fundamental write up of a company through reddit and tell me how it goes. I tried to make it more readable, I’m open to suggestions.