Fitch Ratings confirmed Hilton Grand Vacations Inc.’s IDR rating and senior secured credit rating of “BB+,” but their outlook remains negative. If cash flow continues grow and deleverage rate is rapid, the company may be able to improve its outlook.
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Fitch Ratings has confirmed the IDR of Hilton Grand Vacations, Inc. at ‘BB-1’. Fitch Ratings is maintaining a negative outlook, but it is more optimistic about the capacity of the company to decrease its debt as well as generate cash from its operations. The company is expected to lower its debt by lower than five times EBITDA in the coming years.
Fitch an established player in this industry it is among three credit rating companies that are top of the line globally. The long-term credit ratings of Fitch are determined using an alphabetic scale with ‘AAA’ being the best quality as well as the best cash flow. A ‘D” indicates that a company has failed to keep its promises or defaulted on them.
Ratings of ‘BBB’/’RR4’ indicate the possibility of a low risk of default. The company’s ability to meet its obligations is subject to shifts in business environments.
Fitch Ratings affirmed BB DTVM’s senior unsecured debt credit rating of ‘BB’/’RR4’
Fitch Ratings has confirmed Hilton Grand Vacations senior credit rating of ‘BB/’RR4 based on the renewal of the company’s rating of ‘BB/’RR3. The credit rating is based upon its ability to cut it’s leverage down to less 5.0x its annual EBITDA. To reduce its leverage to 1.0x it will have to invest $649 million in timeshare receivables that are non-recourse.
Hilton Grand Vacations is a world-wide timeshare business that designs and develops timeshare resorts and sells vacation ownership interest (VOIs). It also finance the purchases and operations of these VOIs.
Fitch believes that the increased emphasis of HGV on selling to new owners , and anticipates that growth will exceed 35 percent until 2025. The sales of new buyers accounted for about 30% of the Revenue of the company in 2Q22. Even though new buyers’ sales result the lowest VPG as compared to previous purchases they still make a profit because of their commission structure. This means they’re likely to purchase more points over time.
Fitch Ratings affirmed Hilton Grand Vacations IDR as ‘BB’
The IDR at ‘BB’ reflects the stability of HGV’s cash flow with a strong brand association and sound liquidity. HGV is anticipated to continue improving its global ability to invest while diversifying its portfolio into higher-value-added funds. The company also has a range of challenges in research, such as the need to improve its front office integration as well as risk management systems. The company must continue to expand the distribution system, as well as improving its efficiency in operations.
Additionally, Fitch sees a favorable future for HGV’s increasing new owner sales. They estimate that the proportion of new owners will grow to over 35percent by 2025. Sales from new owners of HGV comprised 30% of revenue in the second quarter. Even though new sales of buyers tend to yield lower VPG than existing owner sales, they are still profitable because of low costs for tours and commission structures. New buyers often purchase additional points that can result in additional revenue.
By FY 2024, the company plans to lower its leverage by 5.0x. This leverage is calculated using an equation that does not include net interest margin from credit for timeshares, non-recourse debt, and other cash sources. The expected reduction in leverage depends on the expansion of EBITDA as well as the availability of easily available cash.
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