Project Chariot
Essay Preview: Project Chariot
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A chain of reactions happened after the announcement of project Chariot : The price of its stock rose 12% in a declining market; Moodys lowered MCs long-term debt ratings from Baa3 to Ba2 and S&P placed MCs securities on its” credit watch” list; MCs 20-year 10% bonds fell from 110 to 80; An outside director of MC resigned from the board; A class-action suit was filed against MC and its top executives. Looking at these reactions, we see that bond rating agencies lowered MCs long-term bonds to a level below investment grade, whereas the stockholders would be very likely benefit from this new project.
Looking at the Stockholders, who will gain from this new project, through diversification of the portfolio, the only negative thing that would leave us, would be the bondholders. In the conclusion part, I will go into more depth of how this negative influence on the criteria could be turned into a positive one. The case further mentions the public, but in my eyes I did not take them into heavy consideration, since bond- and stockholders are more important to the company itself.
Should MC proceed with Project Chariot ?
In our opinion, it shouldnt jump into a conclusion that the project Chariot is a failure just based on market observation in a short-term. MC should proceed the project with long-term goals because this would be a great way to innovate the company. To the bondholders, Its better if they hold on to their bonds and wait how the company will do within the next few years. The credit line can help in paying off the annual interest expenses until the management of Host Marriott Corp. can adjust to its current situation. The credit line provided by Marriott International could be a powerful tool in helping HMC get back on its feet. Since MI is now rated Single A (Investment Grade) in the bond ratings from Standard and Poors, it can easily borrow money at a cheaper rate.