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Just as we saw in the Great Recession it looks like major corporations are starting to turn to their financial partners to help with any liquidity problems that they may have and, this time around, it looks like Hilton is first to the well with a 1 billion dollar cash injection from American Express.
Hilton’s announcement was made in section 8.01 (Other Events) in a filing to the SEC a few hours ago…
In April 2020, we pre-sold Hilton Honors points to American Express for $1.0 billion in cash. American Express and their respective designees may use the points in connection with the Hilton Honors co-branded credit cards and for promotions, rewards and incentive programs or certain other activities as they may establish or engage in from time to time. We will use the proceeds from the Hilton Honors points sale for working capital, general corporate and other purposes.
…and was confirmed by a small announcement by American Express:
As Hilton disclosed today, we pre-purchased $1 billion worth of Hilton Honors points toward our co-branded credit card program that we manage together, which we may use for future promotions, rewards and incentive programs for our joint customers. The points pre-purchase program is part of a pre-existing contractual agreement between American Express and Hilton that was negotiated in prior years and already contemplated in our capital and liquidity planning.
It’s interesting to note that the statement from American Express says that this points purchase was “negotiated in prior years and already contemplated in our capital and liquidity planning” as that would appear to suggest that it’s not related to the current crisis…but I’m not so sure that’s actually what it means.
Technically, at any time in the past, Amex and Hilton could have worked out a deal which would only kick in should Hilton really need some liquidity and that would allow both parties to say that the deal has been planned for some time and to suggest that it isn’t in any way related to a sudden issue with Hilton’s finances (think of it as being a little like an arranged credit facility at a bank that hasn’t been drawn down).
Also, as I’m pretty sure any such deal would have to appear as a continent liability (or something similar) in Amex’s financial records, it would also allow Amex to say what it has just said – that the deal was already contemplated in its capital and liquidity planning.
I find it hard to believe that it’s a coincidence that Hilton is getting a billion dollars from American Express at a time when the travel industry is on its knees – it’s much more likely that this is part of an emergency plan that was put into place by Amex and Hilton after they saw how well a similar plan worked in 2008.
Also, in case anyone needs any further proof that Hilton is eagerly raising cash right now, the hotelier has also just announced that it is launching a $500m senior notes offering to help fund “general corporate purposes”.
Presumably that’s something that has been in the works for a while too 🙂
Expect Big Credit Card Welcome Offers
I have no idea how much American Express has paid per Hilton Honors point but you can be sure that it (a) didn’t have to process the transaction through Points.com and (b) that it didn’t pay Hilton 0.5 cents per point as the rest of us have to when we want to stock up (like in the current sale).
American Express is now awash with Hilton points and it’s unlikely to sit on them for too long so I fully expect to see all the Hilton co-branded credit cards offer big welcome bonuses when the current crisis starts to subside (whenever that may be).
I’m going to stick my neck out and predict an inflation-busting 200,000 point bonus on the Hilton Honors Aspire Card later this year and welcome bonuses of 175,000 and 150,000 points for the Surpass Card and the entry-level card respectively.
Amex and Hilton may be passing this off as something that has been in the works for a while but I’m not buying it. This deal may have been worked out some time ago but there’s every reason to believe that it has only been triggered because Hilton properties around the world are empty and fixed costs still need to be paid.
The interesting thing here is that American Express is also a financial partner of Delta and Marriott so I wonder if it has any similar deals in place with either of them? More importantly, I wonder if Amex still has enough cash on hand to bail both of them out if they come begging or if Hilton has emptied the coffers? We may find out very soon.