Marriott Vacations aims for leverage at pre-Covid level of below 3x

By Devika Patel

Knoxville, Tenn., June 23 – Marriott Vacations Worldwide Corp. plans to use the excess cash on its balance sheet to bring the company’s leverage ratio back down to its pre-Covid level of below 3x.

The company has a lot of cash left over from debt offerings and, now that recovery is beginning, the cash can be used to either refinance or reduce the large levels of debt.

“We obviously did a lot of defensive things early on in Covid, to fortify the balance sheet, not knowing how long Covid would last, so we did go out last May and borrowed $500 million to get cash on the balance sheet, not knowing the duration of Covid and, more recently, with the acquisition of Welk, we did a $575 million zero-percent convert to take advantage, one, of the favorable debt markets and where our stock price was,” president and chief financial officer John E. Geller Jr. said at the Jefferies Virtual Consumer Conference on Wednesday.

“Effectively, the debt at the end of the first quarter, we didn’t use the $500 million, so we have a lot of optionality here going forward,” he said.

On April 1, Marriott Vacations announced that it had acquired Welk Resorts, one of the largest independent timeshare companies in North America, for $485 million, including approximately 1.4 million Marriott Vacations common shares. Most of the cash was funded through

The company wants to reduce leverage.

“As the recovery continues, our goal would be to work back towards that debt to EBITDA of 3x or less,” Geller said.

“That was the leverage we were pretty much at before Covid hit.

“Obviously, we’ve put more leverage on the balance sheet and we have a lot of debt and cash,” he said.

Earlier this month, the company completed a refinancing of its 6˝% notes due 2026, replacing $500 million of the $750 million outstanding with new 4˝% notes due 2029.

Management may also choose to refinance the remaining $250 million of 2026 notes.

“More recently, we just refinanced the $500 million of notes that were due out in 2026 back to 2029 and they had a 6˝% interest rate and we just refinanced at 4˝%,” Geller said.

“So, we’ve got opportunities here to continue to push out our existing maturities, take the other $250 million of that $750 million 2026 [note].

“We’ll have optionality here to prepay that if we want to get our leverage down,” he said.

On Jan. 28, Marriott Vacations priced $500 million of five-year convertible notes after the market close at par with a coupon of 0% and an initial conversion premium of 40% and a $75 million greenshoe. On Feb. 3, the greenshoe was fully exercised, 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.

They will be settled in cash, shares or a combination of both at the company’s option.

The notes will be unsecured but guaranteed by Marriott Ownership Resorts Inc.

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.

On June 7, Marriott Vacations subsidiary Marriott Ownership Resorts priced an upsized $500 million issue of eight-year senior notes (B1/B-) at par to yield 4˝% in a drive-by.

The issue size increased from $450 million.

The yield printed at the tight end of the 4˝% to 4ľ% yield talk. Initial guidance was in the high 4% area.

J.P. Morgan Securities LLC was the lead.

The Rule 144A and Regulation S notes come with three years of call protection.

The company earmarked the proceeds plus cash on hand to redeem $450 million of its outstanding 6˝% senior notes due 2026.

Orlando, Fla.-based Marriott Vacations Worldwide offers vacation ownership, exchange, rental and resort and property management, along with related businesses, products and services.

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