NEW YORK (July 24, 2013) — Fitch Ratings assigns the following ratings to Sierra Timeshare 2013-2 Receivables Funding LLC:
–$226,340,000 class A asset-backed notes ‘Asf'; Outlook Stable;
–$62,180,000 class B asset-backed notes ‘BBBsf'; Outlook Stable;
–$36,480,000 class C asset-backed notes ‘BBsf'; Outlook Stable.
KEY RATING DRIVERS
Improved Brand Concentration: Approximately 62.6% of Sierra 2013-2 consists of WVRI-originated loans (down from 67.3% in 2013-1), and the remaining 37.4% are WRDC loans. On a like-for-like FICO basis, excluding sub-600 FICO score obligors, WRDC’s receivables perform better than WVRI’s. Offsetting the improved brand concentration is a slightly negative shift toward borrowers with lower FICO scores.
Continued Weak WVRI Performance: Similar to other timeshare originators and other consumer asset types, Wyndham Worldwide delinquency and default performance exhibited notable increases in the 2007-2008 vintages. While more recent vintages are displaying improved performance under the WRDC platform, the improvement is not evident under the WVRI platform.
Sufficient CE Structure: Initial hard credit enhancement (CE) is expected to be 34.25%, 15.50%, and 4.50% for the class A, B, and C notes, respectively. Hard CE is composed of overcollateralization, a letter of credit reserve account, and subordination. Soft CE is also provided by excess spread and is expected to be 9.29% per annum.
Quality of Origination/Servicing: Wyndham Worldwide has demonstrated sufficient abilities as an originator and servicer of timeshare loans. This is evidenced by the historical delinquency and loss performance of securitized trusts and of the managed portfolio.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of Wyndham Worldwide and Wyndham Consumer Finance, Inc. (WCF) would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults could produce cumulative gross default (CGD) levels higher than the base case and would likely result in declines of credit enhancement and remaining default coverage levels available to the notes. Additionally, unanticipated increases in prepayment activity could also result in a decline in coverage. Decreased default coverage may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage.
Thus, Fitch conducts sensitivity analysis stressing both a transaction’s initial base case CGD and prepayment assumptions by 1.5x and 2.0x and examining the rating implications on all classes of issued notes. The 1.5x and 2.0x increases of the base case CGD and prepayment assumptions represent moderate and severe stresses, respectively, and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust’s performance.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated July 15, 2013. Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘Sierra Timeshare 2013-2 Receivables Funding LLC – Appendix’. This R&W is compared to those of typical R&W for the asset class as detailed in the special report ‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’ dated April 17, 2012.
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Applicable Criteria and Related Research:
–‘Criteria for Rating U.S. Timeshare Loan ABS’ dated June 10, 2013′;
–‘Global Structured Finance Rating Criteria’ dated May 24, 2013;
–‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’ (April 17, 2012).
Applicable Criteria and Related Research:
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions — Amended
Global Structured Finance Rating Criteria
Criteria for Rating U.S. Timeshare Loan ABS