Hilton Grand Vacations (NYSE: HGV) in its press release on June 10, 2020, has announced that it has raised $300 million as a vacation ownership loan from Hilton Grand Vacations Trust 2020- A via secured notes. The trust has issued three classes of notes which were Class A notes worth $186 million which bears an interest rate of 2.74%, Class B notes worth $66 million which bears an interest rate of 4.22% and Class C notes worth $48 million which bears an interest rate of 6.42%.
The Chief Financial Officer, Dan Mathewes, has said that even during an unstable economic environment the execution of the 2020 ABS (Asset-Backed Securities) offering was successful, the company had to strengthen its initial pricing due to 14 times oversubscription. The Company aims to use the funds from the issuance to pay their debts and for other general purposes.
The company generates its revenue from various segments, for the Q1 2020 revenue from cost reimbursements was $49 million which increased by 16% (Y-o-Y), the revenue from financing for Q1 2020 was $44 million which increased by 7.31% (Y-o-Y), the revenue from sales, marketing, brand for Q1 2020 was $106 million which decreased by 24.82% (Y-o-Y), the revenue from the resort and club management was $44 million which increased by 4.76% (Y-o-Y), the revenue from rental from ancillary services was $52 million which has decreased by 11.86% (Y-o-Y).
So What now?
The Company’s business was widely affected by COVID- 19, the revenue as per the first quarter results of fiscal 2020 was $351 million which reduced by 22% and the net income was $8 million which reduced by 85% compared to the fourth quarter of 2019 (Y-o-Y) respectively. As per the first quarterly results the company has a short term debt of $268 million (includes accounts payable, accrued expenses, and other expenses), a non- recourse debt of $885 million and long term debt of $1.26 billion. Also, the company has cash & cash equivalents of $669 million which includes $495 million generated from its financing activity by issuing debt, the company has a restricted cash balance of $90 million specified for certain expenditures. The company has also repaid $57 million of senior debt and $ 58 million of secured debt in the first quarter.
The Company has furloughed 6100 of its employees to reduce the administrative expenditures. The additional raise of $300 million will surely help the company to pay its upcoming debts but, it has very fewer sources of cash inflow in future to pay the newly raised debts as the pandemic has resulted in fall in revenues across its some main segments which might lead the company into a state of volatility unless it decides to use its timeshare financing receivables worth $1.12 billion which the company can use as promissory notes to pay off its debts and expenditures time to time whenever the money is received.
On May 12, 2020, the company announced that it has entered into a $1 Billion Credit agreement under Amendment No. 2 initially dated December 28, 2016. The amendment provides the company a short term covenant relief and provides structural and permanent long term flexibility by allowing it to raise certain covenants for financial purposes this includes investment in the business operations, financial maintenance and help set a pace for business recovery, which will help the company to reduce the impact of the pandemic.
So what lies further?
The Company in its press release also mentioned that it has recently reopened its properties in the Utah, South Carolina, Nevada, and Florida markets. It expects to open the remaining properties in the coming months
The stock price has lost 30.99% of its 52- week high value in the past six months and touched its 52- week low in the month of March due to the COVID-19 pandemic and continues to be volatile. Since the month of May the stock price is has rallied 24.50% in past one month and is recovering its lost value.
(Source : https://seekingalpha.com/symbol/HGV?s=hgv )
The COVID-19 has impacted the travel & tourism business globally and its effects will last for a few quarters as the governments around the world have imposed restrictions to travel to avoid the further spread of the coronavirus. This will affect the top line of the companies in the tourism industry as all the business operations are halted but certain maintenance expenditures and medical allowance to its employees continue which might lead to a loss in this industry proper immediate financial measures are not taken.