Press Release: Fitch Ratings
April 5, 2002
NEW YORK, NY -- Fitch Ratings has affirmed a 'BBB+' rating for Cendant Corporation's (Cendant) senior unsecured
debt, a 'BBB' rating for its subordinated debt and an 'F2' rating for its commercial paper following the company's
announcement to acquire Trendwest Resorts, Inc. (Trendwest). Fitch has also affirmed PHH Corporation's, ('PHH'),
a wholly owned subsidiary of Cendant, senior debt rating of 'BBB+' and commercial paper of 'F2'. The current Rating
Outlook is Stable.
Cendant's ratings consider the diversity and stability of its core businesses, the company's leading position in
most of its business lines, the resolution of the shareholder class action settlement and the expectation that
complimentary acquisitions will be successfully integrated. The ratings also reflect the company's commitment to
managing its businesses and acquisition strategy so that leverage, debt service and other important credit ratios
remain within ranges that are satisfactory for existing credit ratings. In addition, Fitch expects profitability
to improve as acquisitions are integrated and Avis and other travel-related businesses recover from the recession
and events of September 11.
The acquisition of Trendwest will be accretive to earnings and will result in lower leverage. Cendant anticipates
approximately $15 million in annual cost savings from synergies realized as a result of the acquisition. Trendwest
properties compliment Cendant's existing network of Fairfield Communities (Fairfield) properties and provide the
company's timeshare business with additional geographic coverage in the western United States, Mexico, British
Columbia, and the South Pacific. The transaction adds inventory available for distribution, provides product sales
diversity and strengthens Cendant's position within the timeshare industry.
Cendant's near-term obligations include the final payment for the CUC litigation settlement expected to occur in
July 2002. Cendant currently has set aside $1.66 billion into a settlement fund and will contribute its next quarterly
installment of $250 million in June, bringing the total reserve to $1.91 billion. The remaining balance of $940
million plus accrued interest will be paid from a combination of cash balances and bank facilities. Cendant may
also be required to fund $1 billion on May 4, 2002 if holders of the company's zero-coupon convertible debentures
due 2021 exercise their option to put back the bonds to the company. If this occurs, Cendant has the option of
funding the put with any combination of stock and cash drawn under the company's $1.75 billion revolver. The company
presently has sufficient committed bank facilities to cover both the settlement liability and the potential put.
On April 1, 2002, Cendant announced that it agreed to purchase Trendwest for approximately $919 million in stock
(based on Cendant's 4/1/02 closing stock price of $19.02). Trendwest generated approximately $470 million in revenue
and $99 million in EBITDA in 2001. As of Dec. 31, 2001, Trendwest had more than 149,000 vacation members. Trendwest
resort properties are operated and owned, free and clear of monetary encumbrances, by WorldMark, the Club, a non-profit
mutual benefit corporation, and WorldMark, South Pacific, an Australian registered investment vehicle (collectively,
WorldMark). Trendwest sells its resort properties to WorldMark in exchange for membership credits that it has the
right to exclusively market and sell. Trendwest uses a points-based system that allows owners to reserve units
at any Trendwest property at any time for as little as one day.
Trendwest funds property acquisition and development from member downpayments, borrowings under its bank line of
credit and by selling notes receivable to a warehouse facility where the receivables accumulate for future securitization.
Trendwest has established five bankruptcy- remote limited liability companies that purchase the receivables and
securitize them. Total off-balance sheet receivables were $604 million at Dec. 31, 2001.
By comparison, Cendant's existing timeshare business, Fairfield, acquired in April 2001, has about 340,000 owners
and 33 resorts. Fairfield sells fractional real estate interests, but it operates like Trendwest's point-based
system, since Fairfield property interests have a point value that can be exchanged for other properties or services.
Trendwest markets and sells at offsite locations, which is different from Fairfield where sales are conducted at
its properties. For the time being, Cendant plans to operate Fairfield and Trendwest independently.
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Contact:
Fitch Ratings
Gian-Carlo Laguzza, 212/908-0212 or
Tom Razukas, 212/908-0223 or
Tom Abruzzo, 212/908-0793, New York;
Peter J. Shimkus, 312/368-2063, Chicago.
Media Relations:
James Jockle, 212/908-0547, New York.