Moody’s might cut Diamond Resorts

Moody's Investors Service said it placed the ratings of Diamond Resorts International, Inc. on review for downgrade, including the B2 corporate family rating, B2-PD probability of default rating, B1 senior secured rating and Caa1 senior unsecured rating.

Moody’s said the review for downgrade is a result of Diamond Resorts' high leverage – Moody's adjusted debt/EBITDA was about 7 times for the last 12-month period ended March 31, 2017 – and increasing loan loss reserves, which will make it difficult for the company to reduce leverage.

Diamond Resorts, and other timeshare companies, increased its loan loss reserve over the past year as a result of an increase in timeshare owner defaults, which to a large degree have been initiated by third party activities, the agency added.

Diamond Resorts' loan loss provision increased to 18.4% of gross Vacation Interests sales at March 31, 2017, from 12.9% in the prior year. Should the loan loss reserve trend not improve, the company will have difficulty lowering its leverage below our trigger for a downgrade (below 6.5 times), Moody’s explained.

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