Fitch Ratings expects to assign a stable rating to $275 million of notes issued by Sierra Timeshare Receivables Funding.
The transaction includes AAAsf class A notes, Asf rated class B notes, BBBsf rated class C notes and BBsf class D notes, all of which mature in June 2040.
Collateral backing the Notes consists of fixed rate timeshare loans issued by Wyndham Vacation Resorts and Wyndham Resort Development Corp. Both are subsidiaries of Travel + Leisure Co., formerly known as Wyndham Destinations.
Wyndham Consumer Finance serves as the seller, transfer party, servicer and sponsor of the securitization, Sierra 2022-2, and BofA Securities is the lead underwriter.
Nearly 70.96% of Sierra 2022-2 collateral is made up of loans issued by Wyndham Vacation Resorts, “based on a similar FICO,” according to Fitch analysts John Krementowski and Jorge Plancarte, who wrote the report. .
The pool’s weighted average original FICO score is 733, slightly higher than the FICO score of 729 for the securitization, Sierra 2022-1. Fitch Cumulative Gross Default Proxy for that pool is 22.5%, down from 22.25% for 2022-1, “given the current economic environment and consistent with the prior transaction,” Fitch analysts wrote.
Initially, the credit enhancement, which includes a reserve account and a subordination in addition to the CE, will be 66.1%, 44.5%, 21.7% and 12%, respectively for the A classes, B, C and D. The credit enhancement is lower for Class A notes, and higher for B through D notes, to reflect overcollateralisation and reduced excess spread relative to 2022-1, “due to a higher coupon on the Notes,” the analysts wrote.
Loss coverage for all notes is able to support default multiples of 3.25x, 2.25x, 1.5x and 1.25x for all notes, at ‘AAAsf’, ‘Asf’, ‘ BBBsf’ and ‘BBsf’, respectively, analysts noted.
To be eligible for securitization, a timeshare loan must meet certain criteria by the transaction deadline, according to the report. A key requirement is that the loans have an initial principal percentage of 10% or more, at the time of the sale of the vacation ownership interests to the related debtor, who in this case are the two originators. Loans must comply with federal, state and local laws, cannot be in default or be past due 30 days or more, on scheduled payments and the initial term cannot exceed 180 months.
Fitch’s 2022 timeshare asset-backed security sector outlook remains neutral. Despite lingering geopolitical and inflation risks, tourism and travel demand, as measured by occupancy rates and bookings, has returned to pre-pandemic levels across most timeshare networks.