Fitch Ratings has affirmed the Issuer Default Rating (IDR) for Fitch has also assigned a short-term IDR of 'F3' to
WGF is a wholly-owned subsidiary of
The ratings reflect
Elevated leverage for the 'BBB-' category remains Fitch's primary credit concern, in the context of
STRONG FCF GENERATION
Fitch's expectation is that management will continue to focus on asset-light alternatives in the timeshare segment (e.g. Wyndham Asset Affiliation Model [WAAM] and management fee revenue) in addition to maintaining its current asset-light, fee-driven lodging and vacation exchange and rentals models.
The ratings reflect the company's strategic purchase and ongoing ownership of two hotel properties that are part of mixed-use developments that include lodging and timeshare. Fitch expects the franchising of its hotel brands to remain
POSITIVE LODGING FUNDAMENTALS
Strong occupancy rates and low supply growth are supporting greater pricing power within the U.S. lodging industry, in general. Supply growth has passed its trough, averaging 0.5 percent and 0.7 percent in 2012 and 2013, respectively. Fitch expects U.S. hotel supply to accelerate to 1.1 percent during 2014, but remain comfortably below the 2 percent annual industry average since 1988.
DIFFERENTIATED SEGMENT: EXCHANGE & RENTALS
Scale represents a significant barrier to entry in the vacation exchange industry given the large number of resorts needed to make it an attractive exchange network. The industry structure is essentially a duopoly between
Fitch views vacation rentals as an attractive fee-for-service business that complements
HIGH EXPOSURE TO TIMESHARE
Fitch generally views the timeshare business less favorably than the lodging business due to greater earnings volatility and capital intensity. Fitch estimates that roughly half of
Excess inventory build leading up to the global financial crisis has kept development spending low for the industry at this point in the cycle. Fitch expects higher development spending associated with inventory replenishment to lead to increased cash flow volatility for timeshare companies during the next three to five years.
In Fitch's view, the WAAM model is more efficient with respect to capital allocation, but the level of risk taken by
The most recent iteration of WAAM has
Each WAAM deal has been somewhat idiosyncratic and future deal terms could change.
Fitch expects the company will continue to seek timeshare inventory sourcing opportunities under its asset-light WAAM business model, in addition to modest timeshare inventory spending of roughly
INCREASED OFF-BALANCE-SHEET LIABILITIES
The ratings contemplate
Inventory purchase commitments under its WAAM business model have increased
As with all of its financial obligations, Fitch is monitoring closely
The company's contingent obligations have increased in recent years due, in part, to performance guarantees associated with recent management agreements with
Fitch recognizes that the company may periodically need to enter into management agreements that contain performance guarantees in order to grow its hotel system, thereby increasing its contingent obligations. However, Fitch expects
Fitch believes the company has attributes commonly associated with leveraged buyout (LBO) targets, such as a high FCF yield and a diverse set of operating business with varied cash flow profiles and return characteristics. This risk is heightened in the current accommodative credit environment.
However, several factors mitigate the potential credit risk from an LBO, including change of control provisions in its bond indentures and the limited leveragability for some of its businesses. Fitch also notes that most of
--Fitch has set
--Negative rating pressure could result if Fitch's outlook for development spending and the capital intensity of the company's businesses were to increase materially.
--Reducing and sustaining leverage at around 2.75x and the adoption of more conservative financial policies could result in upward momentum for
Fitch has affirmed the following ratings:
--IDR at 'BBB-';
--Short-term IDR at 'F3';
--CP at 'F3';
--Senior unsecured notes at 'BBB-'.
Fitch has assigned the following ratings:
--Short-term IDR at 'F3';
--CP at 'F3'.
Additional information is available at 'fitchratings.com'.
--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' (
--'2014 Outlook: Cross-Sector Lodging & Timeshare (The Penthouse View)' (
--'Inn the Footnotes: Comparison of Adjusted Credit Metrics and Contingency Risk for U.S. Lodging C-Corps' (
Inn the Footnotes: Comparison of Adjusted Credit Metrics and Contingency Risk for U.S. Lodging C-Corps
2014 Outlook: Cross-Sector Lodging & Timeshare (The Penthouse View)
Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage
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Fitch Ratings has affirmed the Issuer Default Rating (IDR) for
Fitch has also assigned a short-term IDR of 'F3' to