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Rating Action:

Moody's confirms Diamond Resorts' B2 CFR; rating outlook is stable

Global Credit Research - 27 Oct 2017

Approximately $1.9 billion of rated debt affected

New York, October 27, 2017 -- Moody's Investors Service, ("Moody's") confirmed the ratings of Diamond Resorts International, Inc. including its B2 Corporate Family Rating, B2-PD Probability of Default Rating, B1 senior secured rating and Caa1 senior unsecured rating. At the same time, Moody's revised the outlook to stable.

"The confirmation of Diamond Resorts' ratings reflects Moody's expectations that the company will be able to maintain leverage -- including Moody's adjustments and 100% of its securitizations -- at around 6.5x," stated Peter Trombetta, an AVP-Analyst at Moody's. "The confirmation also acknowledges that while provisions for loan losses are expected to remain elevated as a percentage of gross vacation interest sales, Moody's does not expect that the increased provisions for loan losses will have a material negative effect on the company's liquidity," added Trombetta. The company has a strategy in place to address the actions of third parties that have been driving increased defaults and we expect these actions will improve the loan loss reserve trend over time.

Outlook Actions:

..Issuer: Diamond Resorts International, Inc.

....Outlook, Changed To Stable From Rating Under Review

Confirmations:

..Issuer: Diamond Resorts International, Inc.

.... Probability of Default Rating, Confirmed at B2-PD

.... Corporate Family Rating, Confirmed at B2

....$100 million Senior Secured Revolving Credit Facility, Confirmed at B1(LGD3)

....$500 million Senior Secured Regular Bond/Debenture due 2023, Confirmed at B1(LGD3)

....$700 million Senior Secured Term Loan due 2023, Confirmed at B1(LGD3)

....$600 million Senior Unsecured Global Notes due 2024, Confirmed at Caa1(LGD5)

RATINGS RATIONALE

Diamond Resorts is constrained by its high leverage -- Moody's adjusted debt/EBITDA (including 100% of securitizations as debt) is expected to be about 6.5x -- and our expectation that leverage will remain high as the company prioritizes growing its business over absolute debt reduction. The company is also facing earnings pressure from increased provisions for loan losses. The timeshare industry has seen increased defaults as a result of third party activities. While the level of provisions for loan losses is expected to remain elevated and dampen improvement in EBITDA over at least the next year, we do not expect this will affect the company's liquidity profile. Diamond Resorts is also constrained by its modest scale and narrow focus on the higher risk timeshare segment of hospitality. Approximately 60% of Diamond's EBITDA is derived from vacation interest sales and financing, the remainder from its hospitality and management services business. Diamond benefits from its 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 our expectation that the company will be able to maintain debt/EBITDA around 6.5x and EBITA/interest coverage above 1.5x.

While we do not expect an upgrade over the near-term due to the company's high financial leverage, an upgrade could be considered should its earnings diversify away from the vacation interest sales and financing and the company is able to maintain debt to EBITDA below 5.0 times. An upgrade would also require adequate liquidity. Ratings could be downgraded if debt to EBITDA was sustained above 6.5 times or EBITA to interest were to fall below 1.5 times. A deterioration in liquidity or more aggressive financial policy could also result in a rating downgrade.

Diamond Resorts International, Inc. 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 over 400 destinations in 35 countries. Revenues are about $1.1 billion. Diamond is owned by Apollo Global Management LLC.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating 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.

Peter Trombetta
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Janice Hofferber, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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