Business Context and Reporting Period
This Form 8-K, dated May 9, 2018, reports on Wyndham Worldwide Corporation (the "Registrant"). The filing details the completion of the sale of the Wyndham Vacation Rentals Europe business (the "Business") to Compass IV Limited, an affiliate of Platinum Equity, LLC. The transaction was finalized on May 9, 2018, following an initial agreement in March 2018.
Key Financial Metrics
- Sale Proceeds: Approximately $1.3 billion in cash, subject to customary adjustments for cash, debt, and working capital.
- Net Assets Sold: Approximately $480 million as of March 31, 2018.
- Estimated Pre-Tax Gain: Approximately $825 million prior to income taxes, transaction expenses, fair value of guarantees, and working capital adjustments. The filing notes the final gain will likely be materially lower due to these uncertainties.
- Debt Repayment Plan: Wyndham Worldwide expects to use net proceeds (estimated at $1.1 billion after costs and taxes) to repay approximately $1.1 billion in existing debt.
- Interest Expense Impact: Estimated reduction of $8 million for the quarter ended March 31, 2018, and $33 million for the year ended December 31, 2017, assuming a 3% weighted average interest rate.
- Future Revenue: A 20-year agreement establishes a 1% royalty fee on net revenue for the use of the "by Wyndham Vacation Rentals" brand.
Material Changes and Debt Reduction
The primary material change is the disposition of the Wyndham Vacation Rentals Europe business. Based on indebtedness as of March 31, 2018, the company plans to apply net proceeds to the following debt instruments:
| Debt Instrument | Balance (March 31, 2018) | Repayments | Remaining Balance |
|---|---|---|---|
| $400 million revolving credit facility | $400 million | ($400 million) | $0 |
| $1.5 billion revolving credit facility | $902 million | ($376 million) | $526 million |
| Commercial paper | $136 million | $0 | $136 million |
| Term loan | $324 million | ($324 million) | $0 |
| Senior notes and other debt | $2,522 million | $0 | $2,522 million |
| Total | $4,284 million | ($1,100 million) | $3,184 million |
Outlook, Risks, and Contingencies
Post-Closing Credit Support: Wyndham Worldwide and its subsidiary Wyndham Hotels & Resorts, Inc. have provided significant post-closing credit support to the Buyer to ensure regulatory compliance and service continuity. This includes:
- A guarantee by Wyndham Worldwide of up to approximately $180 million (winding down monthly to June 30, 2019).
- A letter of credit of up to approximately £8.5 million (initially to May 1, 2019).
- Guarantees by Wyndham Hotels of up to approximately £63 million and €2.5 million on a perpetual basis.
- An additional commitment of £35.6 million to be deposited into escrow by September 30, 2018.
Risk Allocation: In the event these credit supports are called, losses will be shared between Wyndham Hotels (one-third) and Wyndham Worldwide (two-thirds) pursuant to the Separation and Distribution Agreement. The Buyer has provided indemnity for most credit support calls, while subsidiaries of the Business indemnify Wyndham Worldwide for the $180 million guarantee.
Financial Reporting: No pro forma financial information is included because the Business was already reported as discontinued operations in prior filings.
Investor Verification Checklist
- Verify the final adjusted sale price and the actual pre-tax gain after all working capital and transaction expense adjustments.
- Confirm the exact timing and amount of debt repayments executed against the $1.1 billion net proceeds.
- Monitor the status of the £35.6 million escrow deposit required by September 30, 2018.
- Review the Separation and Distribution Agreement to understand the specific liability split between Wyndham Worldwide and the spun-off Wyndham Hotels regarding the credit guarantees.
- Assess the impact of the 1% royalty agreement on future revenue streams from the sold business.