Rating Action: Moody's rates Wyndham Destination's planned secured note issuance Ba3, no change to Ba3 CFR
Global Credit Research - 20 Jul 2020
New York, July 20, 2020 -- Moody's Investors Service, ("Moody's") assigned a Ba3 rating to Wyndham Destinations' planned secured note issuance. The company's other ratings are unchanged, including its Ba3 Corporate Family Rating, Ba3-PD Probability of Default Rating, and existing secured note rating of Ba3. The outlook remains negative.
Net proceeds from the planned $500 million issuance will be used for general corporate purposes, which may include the repayment of outstanding indebtedness under the secured revolving credit facility, the future repayment of the 5.625% secured notes due March 2021 and the payment of related fees and expenses.
..Issuer: Wyndham Destinations
....Senior Secured Regular Bond/Debenture, Assigned Ba3 (LGD3)
Wyndham Destinations' Ba3 credit profile benefits from its large scale -- it is the largest vacation ownership company, by revenue, and operates the largest timeshare exchange network in terms of number of members. The company also benefits from its licensing agreement with Wyndham Hotels & Resorts (Ba1 negative), its brand and geographic diversification and the stability of the timeshare exchange business and recurring property management fees. In the short run, Wyndham Destinations' credit profile will be dominated by the length of time that the timeshare industry continues to be highly disrupted and the resulting impacts on the company's cash consumption and its liquidity profile. The normal ongoing credit risks include the higher risk profile of the timeshare development and finance segment, including high default rates associated with timeshare consumer receivables, a higher capital investment requirement than its exchange business, and a reliance on the securitization market to recycle consumer receivables so that capital can be made available for other corporate objectives, including returns to shareholders. The company is also constrained by its high leverage, which Moody's estimates will be above 5.0x until at least the end of 2021. The company's SGL-2 Speculative Grade Liquidity rating reflects the company's good cash balances and fully drawn revolving credit facility. We expect these cash balances will be sufficient to cover cash needs in 2020.
The negative outlook reflects Moody's expectation that continued weakness caused by the disruption related to the spread of the coronavirus, and the resulting macroeconomic weakness, could pressure Wyndham Destinations' earnings further and result in debt/EBITDA as high as 6.0x through 2021.
Wyndham Destinations' liquidity is good with cash balances of about $1 billion at March 31, 2020, including proceeds from the full drawdown of its $1.0 billion senior secured revolver due 2023. Moody's forecasts this level of cash will be sufficient to cover the company's required inventory investment, accounts receivable originations, debt service requirements and capital expenditures through 2020. The company just entered into an amendment with its revolver lenders to modify the financial maintenance covenants t through April 2022. Moody's views the company as having modest access to alternative liquidity in a distressed scenario including the sale of receivables.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded further in the near term if the company's liquidity weakened in any way or if the recovery is delayed beyond our base assumptions. The ratings could also be downgraded if indications are that the company cannot de-lever to below 5.25x. The outlook could be revised to stable if the impacts from the spread of the coronavirus stabilizes, resorts open and vacation ownership interest sales increase, enabling the company to maintain debt/EBITDA below 5.25x. Ratings could be upgraded if the company is able to maintain leverage below 4.75x with EBITA/interest expense around 4.5x.
Wyndham Destinations is the largest vacation ownership company in the industry and operates the largest timeshare exchange business. Wyndham Destinations develops and sells vacation ownership (timeshare) intervals to individual consumers and provides consumer financing in connection with these sales. It also provides management services to hotels, rental properties, and vacation ownership resorts. 2019 net revenues were approximately $4 billion.
The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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Peter Trombetta Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Margaret Taylor Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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