Shares of hotel giant Marriott International (NASDAQ:MAR) jumped 5.4% in early trading Tuesday before settling down to a gain of 2.4% as of 10:35 a.m. EDT.
Marriott announced this morning that it has successfully negotiated "amendments" to its co-branded credit card agreements with JPMorgan Chase (NYSE:JPM) and American Express (NYSE:AXP), the net effect of which will be to transfer a combined $920 million in cash from the banks' pockets to Marriott's.
Specifically, says Marriott, Chase will be prepaying $500 million worth of "future revenues" and also paying a $70 million signing bonus "early." Separately, American Express will pre-purchase $350 million worth of "Marriott Bonvoy points and other consideration."
Marriott will classify all this cash as "deferred revenue." Nonetheless, it will be available to Marriott to help tide the hotel chain over until COVID-19 restrictions are lifted and travelers resume traveling again.
In consideration for the cash, Marriott will extend its co-branded credit card agreements with both banks.
And Marriott will need that cash. In the same press release in which it announced the prepayments from its credit card partners, Marriott noted that it had to "terminate" its $1.5 billion revolving credit facility, which was announced on April 14, because its "capacity" had been "substantially reduced as a result of the Series EE senior notes offering the company completed on April 16, 2020."
While not 100% certain, the import of this language appears to be that Marriott has already taken on so much debt to get through this crisis that it couldn't take on much more without violating the terms of existing loan agreements.
And that could be the reason Marriott wasn't able to hold on to all its gains from earlier in the day: Marriott's starting to get up against the wall and reaching the upper limits on its ability to borrow. With the company's total debt load now approaching $12 billion, this will bear watching.