WORLD PROPERTY CHANNEL ®

(NEW YORK, NY) - Wyndham Worldwide Corp., an international hotel-brand icon that calls itself the world's largest lodging franchisor, today received mixed grades on its financial health.

The Parsippany, NJ-based firm's timeshare sector particularly came in for sharp criticism from Standard & Poor's Ratings Services. At the same time, S&P commended Wyndham on its stable cash flow in each of its business units.

Company-wide, however, the New York-based ratings agency revised its outlook to negative from stable and affirmed the 'BBB-' corporate credit rating. (Stephen P. Holmes is chairman and CEO of Wyndham Worldwide Corp.)
 
S&P credit analyst Emile Courtney says the negative outlook revision reflects lower-than-expected EBITDA generation in 2008 and 2009.

Stephen P. Holmes

"We previously expected revenue and EBITDA would increase in the high-single-digit percentage area in 2008 and in the low-single-digit percentage area in 2009, and we now expect growth of flat-to-low-single digits in 2008 and flat-to-low-single digit declines in 2009," Courtney says.

The analyst says "this is primarily due to a reduction in expected timeshare segment EBITDA to flat in 2008 compared to up nearly 10%, and for an expected decline in that business in 2009 compared to modest growth previously."

Wyndham's lodging franchise business is "expected to exhibit a low-single-digit decline in EBITDA,  driven by a modest decline in revenue in 2009, as revenue per available room declines of 5% or more (our current expectation for the U.S. lodging industry) offset low-single-digit room growth," Courtney says.

"We also have a moderately lower view of expected EBITDA at the RCI timeshare exchange and vacation rental businesses, although we expect that business to maintain relatively stable cash flow characteristics."
 
The analyst says S&P also expects Wyndham to show "a meaningful  increase in total lease-and-captive-finance adjusted debt balances over the intermediate term due to a decrease in the expected advance rate Wyndham would receive for selling its timeshare receivables."

Wyndham stated it expects the advance rate to decline to about 60%  from near-80% under its 364-day bank timeshare receivables conduit facility, which the company expects to refinance on or about Nov. 10, 2008, with capacity of at  least $800 million (down from $1.2 billion in capacity at September 2008).

"While we are pleased that investor appetite likely remains for lending against timeshare paper, it will be at a price that is adjusted for intermediate-term risk assessments," Courtney notes.

"As a result, lower current and expected advance rates over the intermediate  term have  led us to revisit the appropriate level of debt to be removed from the balance sheet in our captive finance adjustment, and to lower this amount to the equivalent of 60% of net securitized receivables from 80%.

"The net effect is to raise adjusted debt balances in our credit measure calculations."
 
The report by Courtney and his associate, Liz Fairbanks,  says the rating on Wyndham  "reflects the company's leading market positions in each of its business units and the stable cash flow characteristics of the lodging and RCI vacation network businesses."
 
He says S&P views Wyndham's business profile as investment grade, "incorporating Standard & Poor's positive view of management as prudent business operators and a good level of business diversity."

At the same time, the analyst cautions, "High levels of capital intensity in the timeshare development industry and the company's participation in highly competitive markets offset these positive factors somewhat."

Another key rating factor is S&P's expectation that Wyndham will maintain investment-grade financial metrics, with lease-and-captive-finance-adjusted leverage at around 3.5x or less on average over the economic cycle.

"We also expect the company to maintain access to the securitization markets as a source of funding during the long term, even if the cost of financing is likely to increase materially over the intermediate term," Courtney adds.