Moody's placed the long-term and short-term ratings of Wyndham Worldwide Corp. under review for downgrade, including its Baa3 unsecured rating and Prime-3 commercial paper rating.
The move follows Wyndham's planned spinoff of its hotel group and exploration of strategic alternatives for its European vacation rental business.
The company will split into two separate publicly traded companies: Wyndham Worldwide, operating the timeshare and vacation exchange businesses, and Wyndham Hotel Group, a pure-play hotel company.
According to the note, the review for downgrade reflects the remaining Wyndham Worldwide's focus on the timeshare industry, which the rating agency views as a higher-risk segment of the hospitality industry, and the ambiguity regarding the ultimate capital structure of both companies, including whether the existing senior notes will remain with the surviving timeshare business.
In addition, Moody's said it expects Wyndham Worldwide's revenue to comprise mainly its timeshare sales, which will expose the company to more risk, as it will not benefit from the higher margin and more stable hotel group business.
The rating agency noted that the review for downgrade is likely to take longer than 90 days, since the company is not expected to define the ultimate capital structure at each entity until late 2017 or early 2018, with a rating downgrade of more than one notch possible.
The review will concentrate on the ultimate capital structure of both companies, insight into management's growth plans, likely use of proceeds following the sale of the vacation rental business and financial policy targets.