Moody's upgrades Oyo's rating to B2, highlights improved profitability

Proposed term loan to reduce refinancing risk

Global rating agency Moody’s has upgraded Oravel Stays Limited’s (Oyo) corporate family rating (CFR) from “B3” to “B2”.

 

Sweta Patodia, Assistant Vice President and Analyst, Moody's Ratings said the upgrade also highlights Oyo’s improved profitability over recent quarters. This has significantly strengthened its credit metrics.

 

This upgrade follows the proposed refinancing of Oyo’s existing term loan through another credit. This transaction is expected to alleviate the company’s refinancing risk.

 

The rating agency has maintained a stable outlook. “B2” rating indicates corporate obligation is speculative and has a high credit risk.

 

At the same time, Moody’s assigned a “B2” rating to the $825 million senior secured term loan facility to be availed by its wholly-owned subsidiary Oravel Stays Singapore Pte. Ltd (Oyo) Singapore. The term loan is fully underwritten by Deutsche Bank.

 

Oyo is in the process of securing a new five-year $825 million term loan, which together with the $174 million of primary equity capital raised between June and August 2024. It will be used to repay its existing term loans that mature in June 2026, easing its refinancing pressures. The proceeds will also fund the company’s $525 million proposed acquisition of a US-based hotel.

 

Meanwhile, Oyo’s operating performance has continued to improve on the back of business growth and sustained cost optimization efforts.

 

The company generated an EBITDA (including employee stock ownership expenses) of $98 million for the financial year ended March 2024, a sharp improvement from the $34 million EBITDA loss in the previous year. Its negative free cash flows moderated to $17 million from $84 million over the same period, it added.

 

Sustained improvement in operating performance resulted in Oyo generating $56 million EBITDA for the first half of FY24-25. Furthermore, its acquisition of French rental homes company Checkmyguest (CMG) earlier in July 2024 will aid the improvement in its EBITDA to around $134 million in FY24-25.

 

Earnings will further increase upon the successful integration of its Motel 6 acquisition, especially with cost synergies of $20 million-$30 million following a seamless integration of corporate and support functions, Moody’s added.