Quarterly report pursuant to Section 13 or 15(d)

Debt (Debt Covenants) (Details)

v3.21.2
Debt (Debt Covenants) (Details)
$ / shares in Units, $ in Millions
9 Months Ended
Mar. 02, 2021
Sep. 30, 2021
USD ($)
$ / shares
Jun. 30, 2022
Oct. 22, 2021
Dec. 31, 2020
Debt Instrument [Line Items]          
Maximum leverage ratio   4.25      
Minimum interest coverage ratio   2.5      
Interest Coverage Ratio   3.6      
First Lien Leverage Ratio   4.2     5.4
Debt   Debt
The Company’s indebtedness consisted of (in millions):
September 30,
2021
December 31,
2020
Non-recourse vacation ownership debt: (a)
Term notes (b)
$ 1,505  $ 1,893 
USD bank conduit facility (due October 2022) (c)
314  168 
AUD/NZD bank conduit facility (due April 2023) (d)
138  173 
Total $ 1,957  $ 2,234 
Debt: (e)
$1.0 billion secured revolving credit facility (due May 2023) (f)
$ —  $ 547 
$300 million secured term loan B (due May 2025) (g)
289  291 
$250 million 5.625% secured notes (due March 2021)
—  250 
$650 million 4.25% secured notes (due March 2022) (h)
650  650 
$400 million 3.90% secured notes (due March 2023) (i)
402  402 
$300 million 5.65% secured notes (due April 2024) 299  299 
$350 million 6.60% secured notes (due October 2025) (j)
345  344 
$650 million 6.625% secured notes (due July 2026) 642  641 
$400 million 6.00% secured notes (due April 2027) (k)
407  408 
$350 million 4.625% secured notes (due March 2030) 345  345 
Finance leases
Total $ 3,386  $ 4,184 
(a)Represents non-recourse debt that is securitized through bankruptcy-remote special purpose entities (“SPEs”), the creditors of which have no recourse to the Company for principal and interest. These outstanding borrowings (which legally are not liabilities of the Company) are collateralized by $2.25 billion and $2.57 billion of underlying gross VOCRs and related assets (which legally are not assets of the Company) as of September 30, 2021 and December 31, 2020.
(b)The carrying amounts of the term notes are net of deferred financing costs of $16 million and $21 million as of September 30, 2021 and December 31, 2020.
(c)The Company has a borrowing capacity of $800 million under the USD bank conduit facility through October 2022. Borrowings under this facility are required to be repaid as the collateralized receivables amortize but no later than November 2023.
(d)The Company has a borrowing capacity of 250 million Australian dollars (“AUD”) and 48 million New Zealand dollars (“NZD”) under the AUD/NZD bank conduit facility through April 2023. Borrowings under this facility are required to be repaid no later than May 2025.
(e)The carrying amounts of the secured notes and term loan are net of unamortized discounts of $14 million and $16 million as of September 30, 2021 and December 31, 2020, and net of unamortized debt financing costs of $6 million and $7 million as of September 30, 2021 and December 31, 2020.
(f)The weighted average effective interest rate on borrowings from this facility were 3.19% and 3.02% as of September 30, 2021 and December 31, 2020. In late March 2020, the Company drew down its $1.0 billion secured revolving credit facility as a precautionary measure due to COVID-19. As of September 30, 2021, these borrowings have been repaid. On October 22, 2021, the Company renewed this facility, extending the commitment period through October 2026. See Note 25—Subsequent Events for additional details.
(g)The weighted average effective interest rate on borrowings from this facility was 2.39% and 2.93% as of September 30, 2021 and December 31, 2020.
(h)Includes less than $1 million of unamortized gains from the settlement of a derivative as of September 30, 2021 and December 31, 2020.
(i)Includes $2 million and $3 million of unamortized gains from the settlement of a derivative as of September 30, 2021 and December 31, 2020.
(j)Includes $4 million and $5 million of unamortized losses from the settlement of a derivative as of September 30, 2021 and December 31, 2020.
(k)Includes $10 million and $11 million of unamortized gains from the settlement of a derivative as of September 30, 2021 and December 31, 2020.

Sierra Timeshare 2021-1 Receivables Funding LLC
On March 8, 2021, the Company closed on a placement of a series of term notes payable, issued by Sierra Timeshare 2021-1 Receivables Fundings LLC, with an initial principal amount of $500 million, secured by VOCRs and bearing interest at a weighted average coupon rate of 1.57%. The advance rate for this transaction was 98%.

AUD/NZD Bank Conduit Renewal
On April 27, 2021, the Company renewed its AUD/NZD timeshare receivables conduit facility, extending the end of the commitment period from September 2021 to April 2023. The renewal includes a reduction of the AUD borrowing capacity from A$255 million to A$250 million, while the NZD capacity remains unchanged at NZ$48 million. The renewal bears interest at variable rates based on the Bank Bill Swap Bid Rate plus 1.65%.

Maturities and Capacity
The Company’s outstanding debt as of September 30, 2021, matures as follows (in millions):
Non-recourse Vacation Ownership Debt Debt Total
Within 1 year $ 292  $ 656  $ 948 
Between 1 and 2 years 484  407  891 
Between 2 and 3 years 191  303  494 
Between 3 and 4 years 192  280  472 
Between 4 and 5 years 208  987  1,195 
Thereafter 590  753  1,343 
$ 1,957  $ 3,386  $ 5,343 

Required principal payments on the non-recourse vacation ownership debt are based on the contractual repayment terms of the underlying VOCRs. Actual maturities may differ as a result of prepayments by the VOCR obligors.

As of September 30, 2021, available capacity under the Company’s borrowing arrangements was as follows (in millions):
Non-recourse Conduit Facilities (a)
Revolving
Credit Facilities (b)
Total capacity $ 1,017  $ 1,000 
Less: Outstanding borrowings 452  — 
Less: Letters of credit —  51 
Available capacity $ 565  $ 949 
(a)Consists of the Company’s USD bank conduit facility and AUD/NZD bank conduit facility. The capacity of these facilities is subject to the Company’s ability to provide additional assets to collateralize additional non-recourse borrowings.
(b)Consists of the Company’s $1.0 billion secured revolving credit facility.

Debt Covenants
The revolving credit facilities and term loan B are subject to covenants including the maintenance of specific financial ratios as defined in the credit agreement. The financial ratio covenants consist of a minimum interest coverage ratio of at least 2.5 to 1.0 as of the measurement date and a maximum first lien leverage ratio not to exceed 4.25 to 1.0 as of the measurement date. The interest coverage ratio is calculated by dividing consolidated EBITDA (as defined in the credit agreement) by consolidated interest expense (as defined in the credit agreement), both as measured on a trailing 12-month basis preceding the measurement date. The first lien leverage ratio is calculated by dividing consolidated first lien debt (as defined in the credit agreement) as of the measurement date by consolidated EBITDA (as defined in the credit agreement) as measured on a trailing 12-month basis preceding the measurement date.
On July 15, 2020, the Company entered into an amendment to the Company’s credit agreement governing its revolving credit facility and term loan B (“Credit Agreement Amendment”). The Credit Agreement Amendment established a Relief Period with respect to the Company’s secured revolving credit facility, which commenced on July 15, 2020 and was scheduled to end on April 1, 2022. The Credit Agreement Amendment increased the existing leverage-based financial covenant of 4.25 to 1.0 by varying levels for each applicable quarter during the Relief Period. The maximum first lien leverage ratio for the test period ending September 30, 2021 was 6.75 to 1.0.

Beginning in the first quarter of 2021, and extending through the third quarter of 2021, the Credit Agreement Amendment provided that consolidated EBITDA (as defined in the credit agreement), for the purposes of the first lien leverage ratio, was to be measured based on the greater of either a trailing 12-months preceding the measurement date basis or an annualized basis. In addition, the Credit Agreement Amendment, among other changes, increased the interest rate applicable to borrowings under the Company’s secured revolving credit facility utilizing a tiered pricing grid based on the Company’s first lien leverage ratio in any quarter it exceeds 4.25 to 1.0, until the end of the Relief Period; added a new minimum liquidity covenant, tested quarterly until the end of the Relief Period, of (i) $250 million plus (ii) 50% of the aggregate amount of dividends paid after the effective date of the Credit Agreement Amendment and on or prior to the last day of the relevant fiscal quarter; and required the Company to maintain an interest coverage ratio (as defined in the credit agreement) of not less than 2.0 to 1.0. Finally, the Credit Agreement Amendment amended the definition of “Material Adverse Effect” in the credit agreement to take into consideration the impacts of the COVID-19 pandemic during the Relief Period. The Relief Period included certain restrictions on the use of cash including the prohibition of share repurchases. Additionally, the amendment limited the payout of dividends during the Relief Period to not exceed $0.50 per share, the rate in effect prior to the amendment.

As of September 30, 2021, the Company’s interest coverage ratio was 3.6 to 1.0 and the first lien leverage ratio was 4.2 to 1.0. These ratios do not include interest expense or indebtedness related to any qualified securitization financing (as defined in the credit agreement). As of September 30, 2021, the Company was in compliance with the financial covenants described above. Under the Credit Agreement Amendment, when the first lien leverage ratio exceeds 4.25 to 1.0, the interest rate on revolver borrowings increases, and the Company is subject to higher fees associated with its letters of credit, both of which are based on a tiered pricing grid. Given the first lien leverage ratio of 5.4 to 1.0 at December 31, 2020, the Company became subject to higher fees associated with letters of credit and the interest rate on the revolver borrowings increased 25 basis points effective March 2, 2021.

On October 22, 2021, the Company renewed the credit agreement governing its revolving credit facility and term loan B. This renewal terminated the Relief Period and reestablished the tiered pricing grid that was in place prior to the Credit Agreement Amendment. The interest rate on revolver borrowings and fees associated with letters of credit are subject to future changes based on the Company’s first lien leverage ratio which could serve to further reduce the interest rate if the ratio were to decrease to 3.75 to 1.0 or below. Additionally, the renewal eliminated restrictions regarding share repurchases, dividends, acquisitions, and the Relief Period minimum liquidity covenant. See Note 25—Subsequent Events for additional details.

Each of the Company’s non-recourse, securitized term notes, and the bank conduit facilities contain various triggers relating to the performance of the applicable loan pools. If the VOCRs pool that collateralizes one of the Company’s securitization notes fails to perform within the parameters established by the contractual triggers (such as higher default or delinquency rates), there are provisions pursuant to which the cash flows for that pool will be maintained in the securitization as extra collateral for the note holders or applied to accelerate the repayment of outstanding principal to the note holders. As of September 30, 2021, all of the Company’s securitized loan pools were in compliance with applicable contractual triggers.

Interest Expense
The Company incurred interest expense of $47 million and $147 million during the three and nine months ended September 30, 2021. Such amounts consisted primarily of interest on debt, excluding non-recourse vacation ownership debt, and included an offset of less than $1 million of capitalized interest during both the three and nine months ended September 30, 2021. Cash paid related to such interest was $160 million during the nine months ended September 30, 2021.

The Company incurred interest expense of $52 million and $138 million during the three and nine months ended September 30, 2020. Such amounts consisted primarily of interest on debt, excluding non-recourse vacation ownership debt, and included an offset of less than $1 million and $1 million of capitalized interest during the three and nine months
ended September 30, 2020. Cash paid related to such interest was $126 million during the nine months ended September 30, 2020.

Interest expense incurred in connection with the Company’s non-recourse vacation ownership debt was $19 million and $63 million during the three and nine months ended September 30, 2021, and $26 million and $76 million during the three and nine months ended September 30, 2020, and is recorded within Consumer financing interest on the Condensed Consolidated Statements of Income/(Loss). Cash paid related to such interest was $44 million and $56 million for the nine months ended September 30, 2021 and 2020.
     
Subsequent Event [Member]          
Debt Instrument [Line Items]          
Maximum leverage ratio     4.25 4.75  
Minimum interest coverage ratio       2.5  
Maximum [Member] | Subsequent Event [Member]          
Debt Instrument [Line Items]          
Debt Instrument, Covenant, Leverage Ratio, Tier       3.75  
Secured Revolving Credit Facility due May 2023          
Debt Instrument [Line Items]          
Debt Instrument, Interest Rate, Increase (Decrease) 0.25%        
Relief Period [Member]          
Debt Instrument [Line Items]          
Maximum leverage ratio   6.75      
Minimum interest coverage ratio   2.0      
Debt instrument, Covenant, Liquidity base | $   $ 250      
Debt instrument, Covenant, Liquidity dividend spread   50.00%      
Relief Period [Member] | Maximum [Member]          
Debt Instrument [Line Items]          
Dividends Payable, Amount Per Share | $ / shares   $ 0.50