Marriott Corporation: Bondholders vs. Equityholders

The Marriott case provides a springboard for general discussion of corporate restructuring and the creation/destruction of value. The central issue is the transfer of wealth from bondholders to stockholders, and whether it is proper for a company to exploit bondholders in such a manner. The expropriation of bondholder wealth occurs because the credit worthiness of Host Marriott, where most of the debt will reside, is lower than the pre-restructured Marriott Corporation. The ability of Host Marriott to service the debt also is a topic of interest, as are the information effects on bond and stock prices which accompany the announcement. The case invariably ends up with a discussion of what bondholders and management, in behalf of stockholders, should do.