Hiltons'  issuer default rating (IDR) has downgraded to B from BB+, following the announcement that it agreed to be acquired by The Blackstone Group.

Issue ratings on Hilton's senior credit facility and senior notes are unaffected pending the finalization of a financing structure for the transaction. In addition, all of Hilton's ratings have been placed on Rating Watch Negative.

The following ratings have been affected:

• Issuer Default Rating (IDR) downgraded to 'B' from 'BB+'; Rating Watch Negative;
• Senior credit facility 'BB+'; Rating Watch Negative;
• Senior notes 'BB+'; Rating Watch Negative.

The ratings apply to approximately $5 billion of outstanding debt.

On July 3, 2007, Hilton announced that it agreed to be acquired by affiliates of The Blackstone Group for $47.50 per share, or more than a 40% premium over Monday's closing stock price. The $26 billion all-cash transaction is expected to close during the fourth quarter 2007. Hilton's Board of Directors approved the transaction and a shareholder vote will be scheduled at a later date. Financing commitments have been provided by Bear Stearns, Bank of America, Deutsche Bank, Morgan Stanley and Goldman Sachs.

The terms of the transaction and the prospective capital structure have yet to be finalized, but Fitch believes that the transaction is likely to result in a substantial increase in leverage more consistent with ratings in the 'B' category. If instructed by Blackstone, the merger agreement calls for Hilton to pursue debt tender offers and/or consent solicitations with respect to some or all of the senior notes issued under both the April 1997 and April 2003 bond indentures.

Fitch expects the existing Hilton senior credit facility to be refinanced. Until financing details are provided, existing Hilton issue ratings are unaffected. However, the Rating Watch Negative reflects the potential for a downgrade to 'B' or below once tender offer and capital structure plans have been finalized.

The company's bond indentures do not contain material financial covenants or change of control provisions of the type that are included in the credit facility. The bonds were secured by a pledge of the capital stock of certain wholly owned subsidiaries, but were released from that pledge after the first quarter of 2007.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.