Event Risk: An Example
October 1993 Marriott spun off its hotel management business
worth 80% of its value.
Before the spin-off, Marriott’s long-term book debt ratio was
2891/3644 = 79%. Almost all the debt remained with the parent
(renamed Host Marriott), whose debt ratio therefore rose to 93%.
Marriott’s stock price rose 13.8% and its bond prices declined by
up to 30%.
Bondholders sued and Marriott modified its spinoff plan.