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Rating Action:

Moody's assigns B1 to Diamond Resorts International, Inc. (New) senior secured notes offering

Global Credit Research - 15 Aug 2016

New York, August 15, 2016 -- Moody's Investors Service, ("Moody's") today assigned a B1 rating to Diamond Resorts International, Inc. ("Diamond") proposed $400 million senior secured notes. The rating outlook is stable.

The proposed $400 million senior secured notes offering has no impact on Diamond Resorts B2 Corporate Family Rating and B2-PD Probability of Default Rating as it is leverage neutral. The proposed $400 million notes will be used to decrease the previously proposed senior secured term loan debt to $800 million from $1,200 million. Proceeds from the proposed senior secured notes and term loan, along with $600 million senior unsecured notes, and approximately $1 billion of cash equity contributed by Apollo Global Management, LLC will be used to fund the $3.4 billion buyout of Diamond by Apollo. The purchase price represents about a 10 times EBITDA multiple based upon Moody's 2016 EBITDA estimate of about $360 million.

New ratings assigned to Diamond Resorts International, Inc. (NEW):

Senior Secured Notes B1, LGD 3

RATINGS RATIONALE

Diamond's B2 Corporate Family Rating reflects its modest scale and narrow focus on the higher risk timeshare segment of hospitality. Approximately 69% of Diamond's EBITDA is derived from vacation interest sales and financing. Also considered is Moody's expectation that Diamond's earnings will continue to grow in the next two years primarily through a combination of increased sales to existing members, sales to new members, and increased financing fees related the financing of both of these revenue generating activities. Also contributing to earnings growth, albeit to a smaller degree, will be the implementation of an expense reduction program that is expected to reduce the company's operating expenses by at least $25 million, or about 3% of the company's current operating expenses. Key credit concerns include Diamond's considerable leverage. Although we expect the company will grow earnings and pay down some term loan amounts during the next two years, Moody's still expects debt/EBITDA to remain high, at about 6.3 times by fiscal year-ended Dec. 31, 2017, as the company will also increase the amount of securitized debt to support new business. The ratings are also supported by Diamond's adequate liquidity profile including low capital requirements, favorable cash flow profile of its hospitality management business and lack of near-term debt maturities.

The stable outlook reflects Diamond's concentration in the timeshare industry, including financing, and the expectation that the company will increase its borrowings to support its receivables portfolio. The stable outlook also incorporates Moody's expectation that the company will have positive earnings growth such that leverage declines from the current elevated level and that it will maintain a good liquidity profile.

While not expected over the near-term due to the company's high financial leverage, an upgrade could be considered should Diamond's earnings diversify away from the vacation interest sales and financing and should debt to EBITDA remain below 5.0 times.

Ratings could be downgraded if Diamond's earnings were to fall or should the company's financial policy become more aggressive such that debt to EBITDA was maintained above 6.5 times or EBITA to interest were to fall below 1.5 times.

Diamond is a timeshare business that specializes in the sale of vacation ownership interests in the form of points. Members receive an annual allotment of points and through the membership club can use these points to stay at destinations within Diamond's global network of 437 resorts and 20 cruise itineraries. Diamond also provides consumer financing of the purchase of the vacation ownership interests and manages 108 resorts worldwide. Revenues are about $1.0 billion. Upon closing of the transaction, Diamond will be owned by Apollo Global Management LLC.

The principal methodology used in this rating was Business and Consumer Service Industry published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Margaret Taylor
Senior Vice President
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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