Marriott Vacations liquidity rises; convertibles see strong demand

By Devika Patel

Knoxville, Tenn., Feb. 25 – Marriott Vacations Worldwide Corp. has no debt maturing until $230 million comes due in late 2022, and liquidity has improved.

The company also sold $575 million of convertible debt this year, with strong investor demand.

“Earlier this year, we issued $575 million of 0% convertible notes due 2026, reflecting the strong demand from investors,” president and chief financial officer John E. Geller Jr. said on the company’s fourth quarter and year ended Dec. 31, 2020 earnings conference call on Thursday.

“We used part of the proceeds to enter into a call spread transaction, increasing the conversion price to roughly $214 per share, 70% higher than our stock price on the day we priced the offering.

“We plan to use a portion of the net proceeds to finance the Welk transaction, and we also used $100 million of proceeds to pay down a portion of our term loan.

“We still have no corporate debt maturities until September of 2022, which is our 2017 convertible notes, and that’s only $230 million,” Geller said.

The company ended the year with nearly $1.3 billion in liquidity, including $524 million of cash and cash equivalents and $597 million of available capacity under its revolving credit facility.

“Our liquidity increased by roughly $60 million in the second half of the last year,” Geller said.

At the end of the fourth quarter, the company had $4.3 billion in outstanding debt, net of unamortized debt issuance costs.

On Jan. 28, Marriott Vacations priced $500 million of five-year convertible notes at par with a coupon of 0% and an initial conversion premium of 40%. There was a $75 million greenshoe, which was exercised fully on Feb. 3, lifting the total deal size to $575 million.

Pricing came at the rich end of initial talk for a coupon of 0% to 0.5% and richer than initial talk for an initial conversion premium of 32.5% to 37.5%.

J.P. Morgan Securities LLC and BofA Securities Inc. were active bookrunners for the Rule 144A offering.

The notes are non-callable.

In connection with the pricing of the notes, the company entered into convertible note hedge and warrant transactions.

The strike price on the warrant transaction is $213.7625, which represents a 75% premium over the last reported sales price of stock.

Proceeds were earmarked to cover the cost of the hedge transactions, to finance the acquisition of Welk Resorts, to repay certain Welk Resorts debt, to repay a portion of the company’s term loan and for general corporate purposes.

Marriott previously announced its intention to acquire Welk Resorts for $430 million in cash and 1.4 million shares of common stock.

Marriott Vacations is an Orlando, Fla.-based vacation ownership, exchange, rental, and resort and property management services provider.

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