The notes will rank equally with Starwood's other unsecured and unsubordinated debt. The proceeds from the offering will be used to fund concurrent tender offers for $200 million of 7.875% notes due 2012 and $100 million of 6.25% notes due 2013. If the full tenders are not accepted, remaining funds will be used for general corporate purposes. As a result, the issuance may be mostly leverage neutral depending on the success of the tender offer.

Fitch believes Starwood's liquidity is adequate relative to its upcoming needs and that the company is likely to be opportunistic with respect to refinancing and accessing the capital markets over the next few quarters. As of Sept. 30, 2009, Starwood had $113 million of available cash and $1.575 billion of availability on its $1.875 billion revolving credit facility, which expires in February 2011. Fitch calculates that the company generated roughly $243 million of free cash flow prior to dividend payments over the last 12 months (LTM) ending Sept. 30, 2009.

In addition, the company continues to enhance liquidity and improve its credit and leverage profile through the sale of non-core assets. In first quarter 2009 (1Q'09), Starwood signed an agreement to sell its Bliss Spas for roughly $100 million and closed the sale of the retail space at the St. Regis New York for $117 million. That followed the sale of two wholly-owned hotels in 3Q'09 that resulted in cash proceeds of $96 million. Enhanced liquidity and debt reduction could be supported over the next few months by the receipt of $200 million of proceeds related to an IRS settlement, and a timeshare receivable note sale. Both Marriott and Wyndham have successfully sold timeshare receivables recently, and securitization terms are improving, indicating the market is likely to be receptive to a Starwood securitization.

The proposed issuance and tender offers aim to push out some of the companies nearest bond maturities, although the issuance is not contingent on the success of the tender offers. The 2012 notes have $802 million outstanding and the 2013 notes have $604 million outstanding as of Sept. 30, 2009. Prior to the bond maturities, Starwood has a $300 million term loan due in September 2011, and its revolving credit facility expires in February 2011, and had only $159 million drawn as of Sept. 30, 2009.