S&P lifts Diamond Resorts

Standard & Poor's said it raised the corporate credit rating for Diamond Resorts Parent LLC to B- from CCC+ and removed it from CreditWatch, where it was placed with positive implications Aug. 3.

The outlook is positive.

The agency assigned Diamond Resorts Corp.'s $425 million senior secured notes due 2018 a B- issue-level rating with a recovery of 4.

Proceeds will be used to repay the company's revolving, first-lien and second-lien credit facilities.

S&P said the upgrade reflects the closing of Diamond's notes issue, which refinanced the company's credit facilities that were maturing over the next few years, and the refinancing of the $64.6 million 364-day conduit facility, which provides intermediate-term operating liquidity.

The rating is based on the company's somewhat weak EBITDA and funds from operations coverage of interest in the low- to mid-1x area and high debt leverage in the 6x to 7x area over the next few years, the agency said.

The rating also reflects Diamond's reliance on external sources of capital to achieve its current sales budget, the agency noted.

These factors are somewhat tempered by the company's well developed and cash flow positive management business and solid contracts with homeowners' associations that allow for some inventory recapture at a lower cost than expenditure levels historically invested in resort development, S&P said.

The company's high debt leverage is also a key rating factor, the agency said, with an adjusted debt-to-EBITDA ratio to be about 7x in 2010 and 6x in 2011.

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