OREANDA-NEWS. S&P Global Ratings today assigned its 'CCC+' issue-level rating and '6' recovery rating to Dakota Merger Sub Inc.'s proposed $600 million senior unsecured notes due 2024. The '6' recovery rating reflects our expectation for negligible recovery (0%-10%) of principal for lenders in the event of a payment default. The issue-level rating is two notches below our 'B' corporate credit rating on the company's parent, Las Vegas-based Diamond Resorts International Inc.

Diamond expects to use the proceeds from the debt issuance, along with its previously announced $1.3 billion senior secured credit facility and a $1 billion sponsor equity contribution, to help fund its $2.2 billion acquisition by affiliates of funds managed by Apollo Global Management LLC.

Our corporate credit rating on Diamond is not affected by the company's recent moderate restatements of its 2014, 2015, and first-quarter 2016 financial results due to corrections to its application of the relative sales value model to value its timeshare inventory. We don't believe the restatements will have a material impact on our base-case forecast through 2017 because we've already incorporated a high level of anticipated variability in the cost of sales expenditure that results from the periodic relative sales value estimate. The high variability in the cost of sales expenditure also partly explains our modest low-single digit EBITDA forecast for 2016, despite a fairly robust low-teens percentage 2016 revenue growth forecast.

For the full corporate credit rating rationale, see "Diamond Resorts International Inc. Rating Lowered To 'B' And Removed From CreditWatch; Outlook Stable," published July 25, 2016, on RatingsDirect.

RECOVERY ANALYSIS

Key analytical factorsOur simulated default scenario contemplates a default occurring in 2019 due to a severe economic downturn and tightening of consumer credit markets that result in substantially lower demand for Diamond's products. We also assume illiquidity in the financial markets for timeshare securitizations and conduit facilities. We believe that if Diamond were to default, it would continue to have a viable business model, given the stability in the hospitality and management business segment and our belief that the company's flexibility of points is comparatively more attractive to consumers than interval weeks. We valued the company at a 5.5x emergence EBITDA, based on the scale of its resort network. Simulated default assumptionsSimulated year of default: 2019EBITDA at emergence: $175 millionEBITDA multiple: 5.5xSimplified waterfallNet enterprise value (after 5% administrative costs): $914 millionSecured first-lien debt: $1,298 million-- Recovery expectation: 70%-90% (lower half of the range)Unsecured debt: $630 million-- Recovery expectation: 0%-10%Note: All debt amounts include six months of prepetition interest.