Fitch Downgrades Starwood's IDR, Outlook Remains Negative

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. February 05, 2009

FEBRUARY 5, 2009 - Fitch Ratings has downgraded Starwood Hotels & Resorts Worldwide Inc.'s (Starwood) Issuer Default Rating (IDR) and outstanding debt ratings as follows:

--IDR to 'BB+' from 'BBB-',

--Senior unsecured credit facility to 'BB+' from 'BBB-',

--Senior unsecured term loans to 'BB+' from 'BBB-',

--Senior unsecured notes to 'BB+' from 'BBB-'.

The Rating Outlook remains Negative. The ratings downgrade affects Starwood's $1.875 billion credit facility, $1.375 billion of outstanding term loans, and $2.25 billion of outstanding senior unsecured notes.

The downgrade reflects the continued rapid deterioration in lodging operating trends since Fitch revised Starwood's Rating Outlook to Negative on Dec. 5, 2008. Last week, Starwood revised its 2009 operating expectations to a level well below Fitch's outlook from early December. Specifically, Starwood now expects a 12% revenue per available room (RevPAR) decline in 2009 for its comparable company-operated properties worldwide and a 15% RevPAR decline for its owned hotel portfolio, which is exposed to markets under significant pressure, such as New York, Hawaii and Phoenix.

Currently, Starwood's outlook incorporates flat RevPAR growth by fourth quarter-2009 (Q4'09), as it anniversaries weakness from Q4'08 and travel demand trends stabilize. However, there is extremely limited operating visibility, and Fitch maintains a macro economic view of a deepening global recession. As such, Fitch's Negative Outlook incorporates the potential for additional pressure on Starwood's operating performance in 2009 and 2010.

Although cost-cutting measures and supply growth will help to cushion the EBITDA decline, Starwood's current 2009 outlook implies a 24%-25% decline in 2009 EBITDA to $875 million, and year-end debt leverage of roughly 4.1 times (x). Fitch's current expectations incorporate a 25%-30% decline in 2009 EBITDA followed by a generally flat to low-single digit increase in 2010. In this scenario, leverage may increase closer to the mid-4x range in 2009, but due to expected debt reduction funded with free cash flow and a dividend cut, leverage could decline below 4x in 2010. However, this leverage measure does not incorporate other adjustments, including operating leases, securitized timeshare portfolio debt, loan guarantees, and other off-balance sheet liabilities. Therefore, Starwood's adjusted leverage would be above these levels, resulting in weak metrics for the current rating.

Starwood management expects to remain inside its bank facility leverage covenant of 4.5x in 2009. The company is currently in discussions with its lenders regarding a number of amendments to the facility that may incorporate an easing of the leverage covenant and a refinancing of a term loan (TL) due this year. Starwood's three TLs are currently scheduled to mature over the next 18 months. The company has a $500 million TL due June 2009, another $500 million TL due June 2010, and a $375 million TL due April 2010, but that maturity is extendable until February 2011, which is when Starwood's revolving credit facility expires. Fitch believes the company can meet the 2009 maturity with cash on hand, proceeds from an IRS settlement and availability on its revolver. In the event that the company approaches its credit facility covenant, Fitch believes that it would likely be able to obtain a waiver or amendment due to its solid free cash flow profile.

The ratings continue to reflect Starwood's solid brands, quality assets, which include a sizeable, unencumbered owned asset portfolio that could be used as collateral if needed, and substantial product and geographic diversification. In addition, the ratings are supported by Starwood's solid free cash flow profile despite the significant industry and economic headwinds.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.