Moody's upgrades Oyo parent Oravel Stays rating; maintains stable outlook

Moody's Ratings has upgraded the corporate family rating (CFR) of Oravel Stays Limited -- travel tech platform Oyo's parent firm -- and the rating on the senior secured term loan issued by its wholly-owned subsidiary Oyo Singapore to B2 from B3, and maintained the stable outlook.

In a statement on Wednesday, Moody's said it has assigned a B2 rating to the $ 825 million senior secured term loan facility to be availed by Oravel Stays Singapore Pte. (Oyo Singapore). The term loan is fully underwritten by Deutsche Bank.

Elaborating upon the rating rationale, Moody's said 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, 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 $ 525-million acquisition of US-based hotel chain Motel 6.

Oyo's interest expense will decline to around $ 65 million-$ 70 million in FY24-25 from $ 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 $ 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.