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Marriott reaches accord with large bondholders over plan to split up 1 group balks, but analysts hail deal


Marriott Corp. repaired some damage to its reputation in the credit markets yesterday as it announced an accord with a number of its largest bondholders on its plan to split into two companies.

Another group of aggrieved investors rejected the settlement and vowed to meet Marriott in court. Analysts, however, reacted favorably to the deal.

"It seems to me to be a win-win situation," said Steven Rockwell of Alex. Brown & Sons Inc. "The bondholders get something, and Marriott gets something."

The Bethesda-based hotel and food services company said its settlement affects a group of institutional investors that hold about $400 million in Marriott bonds, which plunged in price last October after the company unveiled the plan. Representatives of a group of investors who had filed a class-action suit against Marriott in U.S. District Court in Baltimore also settled.

The original plan would have split the company, which posted $8.3 billion in fiscal 1991 sales, into a nearly debt-free entity named Marriott International Inc. and a debt-laden company called Host Marriott Corp.

Under that plan, Marriott International would inherit the present company's lodging, food service and facilities management units. Host Marriott would receive the company's real estate properties and airport and toll road concessions -- along with about $2.9 billion in debt, including $1.9 billion in obligations to bondholders.

When the plan was announced, the bond market howled. The company's bonds lost about 30 percent of their value as traders saw highly rated Marriott Corp. debt mutating into "junk." Shareholders were delighted, but the plan turned into a public relations embarrassment for Marriott, a company that prides itself on a pristine reputation.

Yesterday's settlement calls for the transfer of about $450 million in debt from Host Marriott to Marriott International, along with some assets that had originally been slated to go to Host. Marriott spokesman Robert T. Souers said those assets, including leased land and two retirement communities, will generate enough cash flow to pay the interest on the Marriott International debt.

The deal provides for Marriott International to extend up to $125 million in mortgage financing for Host Marriott's construction of the Philadelphia Marriott Hotel, as well as funding $200 million of a $630 million line of credit for Host. The settlement leaves Host Marriott with $2.1 billion in debt and Marriott International with about $900 million.

For those who accept the offer, Marriott will exchange old bonds for new ones that will yield a full percentage point more while extending maturities by about four years.

By unloading debt and extending maturities on its bonds, Host Marriott will become a more attractive investment than it appeared six months ago, said Darren Bagwell, managing analyst of an independent research group.

Mr. Bagwell said the settlement was a significant victory for Marriott. "They're getting what they wanted, which is the ability to grow," he said.

Both the bond and stock markets signaled their approval of the settlement in trading yesterday. The 9.5 percent Marriott bond due in 2002 sold for $980, up from $960 Wednesday and $780 in October.

Marriott stock closed at $26.50, up 75 cents.

With yesterday's settlement, Marriott came to terms with some of the most powerful investors in the bond market, including IDS Financial Services, Teachers Insurance and Annuity Association, Allstate Life Insurance and the mighty California Public Employees Retirement System (CALPERS). All had announced their opposition to the original plan but had held off filing suit.

Left isolated was Marriott's most vocal antagonist, PPM America Inc. It and several other institutions, representing about $120 million of Marriott's bonds, vowed to continue pressing their securities fraud lawsuit against the company, intimating that the large institutional investors folded their tent too soon.

Steve Cooper, a New York attorney who represents PPM, said the settlement represented "cosmetic changes" in the restructuring that wouldn't even bring the Host Marriott bonds up to investment grade.

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