NEW YORK (May 23, 2012) — OVERVIEW
— A Homeowner’s Association Board of a Diamond Resorts property in Hawaii imposed a $65 million assessment to cover water intrusion damage, sparking a class action lawsuit by owners.
— The water intrusion assessment fees may affect performance of the loans that serve as collateral in timeshare securitizations.
— We will continue to monitor loan performance in the portfolios of our two rated Diamond timeshare securitizations, Diamond Resorts Owner Trust’s series 2009-1 and 2011-1.
Standard & Poor’s Ratings Services said yesterday that it is monitoring the potential impact of a $65 million assessment fee on the performance of two rated Diamond Resorts Owner Trust transactions, series 2009-1 and 2011-1. The Homeowner’s Association Board of a Diamond Resorts property in Hawaii imposed the fee on timeshare owners to cover water intrusion damages to the property. As a result, timeshare owners have filed a class action suit against the company, its CEO, and certain members of the Homeowner’s Association Board.
The imposition of this assessment may, in our view, result in an increase in defaults among timeshare owners, many of whom may also have obtained financing from Diamond or an affiliate to purchase their timeshare interest. These loans, made to facilitate the purchase of timeshare interests, serve as part of the underlying collateral for the series 2009-1 and 2011-1 transactions. If a spike in defaults were to result from this fee, the ratings we have assigned to these two transactions could be negatively affected.
The assessment amounts to approximately $6,000 for deeded owners of one week at the property. The average assessment for a points-based owner is about $1,500. The assessment represents a significant increase from typical maintenance fees, which range from approximately $800 to $1,500 a year for owners of a deeded one-week interest in a property.
Because the fees for deeded ownership are greater than for points-based owners, we believe these owners are at a higher risk of default. Failure to make timely payments may result in the owner’s suspension of rights to use the property and ultimately lead to a foreclosure of the owner’s interest in the property.
Under Diamond’s collection policies, the loan foreclosure process begins at payment default, which is deemed to have occurred at 120-days delinquent. The collection and foreclosure process for this assessment is likely to be similar to the collection and foreclosure process for loans.
As of Jan. 1, 2012, the aggregate outstanding note balance for Diamond Resorts Owner Trust 2009-1 was approximately $81.4 million backed by approximately $124 million in collateral. Based on information obtained from the developer, as of March 1, 2012, approximately 13% of the underlying collateral consists of loans to points-based owners of the Hawaiian properties and 0.7% of the collateral is loans to deeded owners of the Hawaiian properties.
As of Jan. 1, 2012, the aggregate outstanding note balance for Diamond Resorts Owner Trust 2011-1 was approximately $50.5 million backed by approximately $53 million in collateral. Based on information obtained from the developer, as of March 1, 2012, in the 2011-1 transaction, approximately 11% of the underlying collateral consists of loans to points-based owners and 0.1% consisted of loans to deeded owners at the Hawaiian properties.
Based on reports received to date, monthly defaults and delinquencies have remained relatively stable in both transactions. We will continue to monitor the underlying loan performance in light of the assessment in order to determine whether there will be any impact on the ratings assigned to the transactions.
SOURCE: Standard and Poor’s