How Blackstone revived Hilton brand

"For a period Hilton looked like it was on death's door," says Guy Metcalfe, a real estate banker at Morgan Stanley. "But what distinguished Jon Gray wasn't the original deal, it was how he saved it."

How Mr Gray saved Hilton Worldwide was a matter of skill and luck, Mr Metcalfe adds. In 2007, when private equity group Blackstone bought the hotel chain, then with 2,900 hotels, it paid more than $26bn, a 40 per cent premium over the share price at the time. That included $6bn of its own and its investors' money, almost $7.5bn in assumed debt and about $13bn of new debt.

The financing market for leveraged deals such as Hilton had already started to collapse. That meant the banks could not get the loans off their balance sheets - it was never chopped into pieces, securitised and parcelled out to many hundreds if not thousands of investors.

Since only a handful of banks and a few junior lenders held the debt, rather than a cast of thousands, it was easier to renegotiate, eliminating about $4bn of borrowed money in the process. Blackstone put up almost $1bn in additional funds to buy the junior debt at a sharp discount and converted that mezzanine piece into preferred securities while the banks swapped their debt for preferred securities that gave them some equity upside.

When Blackstone bought the chain in what was then the largest hotel buyout ever, Hilton's brand lacked the panache of some rivals. Today, the company has 4,000 hotels, and about 1,000 in the pipeline, with the majority being built outside the US. The brand has been polished with signature Waldorf Astoria hotels in places such as Shanghai. It also has a new chief executive, after Mr Gray brought in Chris Nassetta, who used to run Host Marriott, the largest hotel real estate investment trust.

Both hotel occupancy and rates are up, while earnings before interest, tax, depreciation and amortisation at the hotel chain grew 17 per cent during the first half, though Blackstone does not disclose figures. Staff at Blackstone say they no longer complain about staying at Hilton hotels as they used to in the early days.

Two weeks ago, Hilton appointed four banks to take it public in the coming months, though a sale is still possible.

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