Given the current situation of the markets, we have dived into Melia''s balance sheet to assess the company''s financial strength in the face of a more bearish macro scenario, involving higher interest rates for longer than expected. We believe Melia faces significant downside risk to finance costs... and these are not discounted yet by consensus. Debt levels keep weighing on our investment case Although Melia is capitalizing on the current positive dynamics of the industry, mainly thanks to the rally seen in ADRs, we continue to see Melia''s balance sheet as stretched. Leverage continues to be high in absolute and relative terms, with over 80% of debt being bank debt and c.55% of debt tied to variable rates (up from 45% since last refinancing). We update our estimates to reflect a more difficult refinancing scenario, lowering our EPS estimates by 8% on average between ''23-''25. The coverage ratio will not improve between 2022-25 Unless we see significant asset disposals (beyond the EUR120m announced by Management for 2023) or a rights issue (which is unlikely given Management''s view on this), Melia''s interest coverage ratio will continue to be low in 2025 (5.1x), and we see limited upward potential for this to improve relative to the change in multiple of the European hotel sector between 2023-25. Near term refinancing needs look tight If we look at near-term refi needs between 2023 and 2024, we believe there is a significant downward risk to financing costs as near-term refinancing needs represent c. 35% of Melia''s total gross debt. Our funding analysis suggests an accumulated shortfall of EUR266m by 2025. We reaffirm our Underperform rating on Melia; New TP of EUR4.6/sh On top of our bearish view on short-term and mid-term margins (higher leasing, external services and labour costs), we believe there is a structural issue with Melia''s debt, and assuming a more bearish interest rate scenario (with higher interest rates for longer), we see a...