Impact of the $500 million senior‑secured note issuance on Travel + Leisure Co.’s leverage and credit‑metric profile
| Metric | What the company is doing | Resulting effect |
|---|---|---|
| Total debt (gross) | The company is issuing $500 million of new senior secured notes. | Gross debt rises by $500 million on the balance‑sheet. |
| Net debt | The net proceeds are being used to redeem all of the company’s outstanding 6‑percent senior notes (and any other comparable existing debt). By extinguishing that existing debt, the cash outflow equals the amount of the old notes that are being retired. Assuming the redeemed securities have a face value close to the $500 million being raised, the net‑debt increase is minimal or possibly zero. In practice the new notes replace the old ones, so net‑debt is essentially unchanged, but the average interest rate on the debt basket falls (the 6 % notes are being swapped for a new issue that will be priced at today’s market rates, which are likely lower than 6 %). | |
| Leverage ratio (e.g., Net‑Debt/EBITDA) | Because the old higher‑cost debt is removed and the new debt is priced at a lower rate, the interest‑expense component of EBITDA improves. The net‑debt level stays roughly the same, while EBITDA is boosted by the lower interest cost, so the net‑debt/EBITDA ratio declines. | |
| Debt‑to‑Equity (D/E) | Equity is unchanged; the debt side is simply re‑structured. The D/E ratio therefore remains flat or modestly lower because the older, higher‑coupon notes are replaced with a new, lower‑coupon issue. | |
| Interest‑Coverage Ratio (EBIT/Interest) | By swapping the 6 % notes for a new issue that will carry a lower coupon, the annual interest expense falls. With the same or slightly higher EBIT, the interest‑coverage ratio rises. | |
| Credit‑Rating Outlook | Credit agencies view a debt‑re‑structuring that reduces cost of capital and extends maturity positively. The company is not taking on additional net leverage, but is improving the quality of its debt profile (longer term, lower coupon, senior‑secured). Consequently, the rating outlook could be upgraded or at least stabilized. | |
| Liquidity / Debt‑Maturity Profile | The new 2033 maturity pushes the bulk of the company’s senior secured debt 10 years out (vs. the earlier 2025‑2026 maturities of the 6 % notes). This flattens the maturity schedule, reduces refinancing risk, and improves the company’s Liquidity‑Score in most credit‑scoring models. |
Why the leverage metrics improve despite a $500 million issuance
Redemption of existing higher‑cost debt – The proceeds are not used for new projects or acquisitions; they are used to retire the company’s outstanding 6 % senior notes. The old notes likely carry a higher coupon and a sooner maturity, so swapping them for a lower‑coupon, longer‑dated issue reduces the effective* interest burden.
Lower weighted‑average cost of debt – Even though the gross debt amount rises, the weighted‑average interest rate falls, which directly improves interest‑coverage and indirectly improves leverage ratios that use EBITDA (since EBITDA is higher after the interest‑expense reduction).
No net increase in leverage – Because the cash raised is immediately applied to retire comparable debt, the net‑debt position (gross debt less cash on hand) is essentially unchanged. The company therefore does not become more leveraged; it simply re‑structures its capital structure.
Extended maturity – The 2033 notes give the company a longer runway before the next large refinancing, which is a positive factor in most credit‑metric calculations (e.g., “Debt‑Maturity” score, “Liquidity” score).
Bottom‑line
- Gross debt: +$500 M (new notes).
- Net debt: ≈ unchanged (old 6 % notes are retired with the same amount of cash).
- Leverage ratios (Net‑Debt/EBITDA, D/E): down (or flat) because the debt level stays the same while EBITDA improves from lower interest expense.
- Interest‑Coverage: up due to a lower coupon on the new notes.
- Credit‑rating outlook: likely upgraded or stabilized as the company reduces its cost of capital, extends maturity, and eliminates refinancing risk.
Overall, the $500 million issuance is a refinancing move rather than a new borrowing that adds leverage. It cleans up the balance sheet, lowers the cost of debt, and improves the key credit metrics that lenders and rating agencies monitor.