Hilton Grand Vacations on credit watch due to high leverage, increased share buybacks: S&P Global

Investing.com -- S&P Global Ratings has placed Hilton Grand Vacations Inc . (NYSE:HGV) on CreditWatch with negative implications, due to the company’s anticipated high leverage and increased share repurchases. This decision followed HGV’s fourth-quarter earnings call where the company provided EBITDA guidance for 2025, which is considerably lower than the previous forecast by S&P Global Ratings.

HGV also announced its intentions to boost share repurchases to around $600 million per year, up from the previous figure of $400 million per year. S&P Global Ratings believes that these changes will likely keep HGV’s leverage above the 4.5x downgrade threshold until at least 2025.

HGV’s ’BB’ issuer credit rating, among other ratings, is now on CreditWatch with negative implications. Over the next few weeks, S&P Global Ratings plans to update its base-case forecast for 2025 and 2026, review HGV’s financing business optimization program and increased securitization activity, and evaluate the company’s financial policy in light of its plans to increase shareholder returns despite its leverage exceeding its policy range.

S&P Global Ratings expects HGV’s reduced EBITDA generation and increased share repurchases over the next couple of years will maintain its leverage above the 4.5x downgrade threshold until at least 2025. The company ended 2024 with an adjusted leverage of approximately 6x, excluding transaction costs of roughly $237 million.

HGV’s guidance for its adjusted EBITDA attributable to stockholders excluding deferrals of $1.125 billion-$1.165 billion in 2025 is weaker than previously expected. The company indicated that consumers are pulling back on significant discretionary purchases due to high interest rates and prices, which is likely to result in lower timeshare sales for HGV.

In early 2024, HGV issued approximately $1.8 billion of new corporate debt to fund its purchase of Bluegreen Vacations (NYSE:BXG). Despite this, the company did not reduce its net debt as assumed in the base case. HGV repurchased $432 million of shares in 2024 and announced plans to increase the amount of receivables that it securitizes to target an increased approximately $600 million of annual share repurchases starting in 2025 and 2026.

S&P Global Ratings believes that HGV’s plan to increase its share repurchases may indicate a risk appetite that may not be in line with the ’BB’ rating. The company’s adjusted leverage was about 6x in 2024, which remains well above the 4.5x downgrade threshold.

HGV’s elevated leverage heightens the downside risks to the rating because it has a minimal cushion to absorb operating missteps or macroeconomic headwinds over the next 12 months. S&P Global Ratings plans to resolve the CreditWatch over the next several weeks and could revise its outlook on HGV to negative or lower the rating if it believes HGV’s leverage will remain above the 4.5x downgrade threshold through year-end 2025.

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