CHICAGO, IL (June 19, 2014) — Fitch Ratings has assigned the following ratings and Outlooks to the notes issued by Hilton Grand Vacations Trust 2014-A:
–$303,570,000 class A notes ‘AAsf'; Outlook Stable;
–$46,430,000 class B notes ‘Asf'; Outlook Stable.
Fitch’s presale report is available to all investors at ‘www.fitchratings.com‘ or by clicking on the above link.
KEY RATING DRIVERS
Strong Collateral: The 2014-A pool has a weighted average (WA) Fair Isaac Corp. (FICO) score of 743. Additionally, the pool has a WA seasoning of 31 months. A highly seasoned pool typically experiences lower defaults than an unseasoned pool.
Improving Performance: Hilton Resorts Corporation’s (HRC) delinquency and default performance exhibited notable increases in the 2005 to 2009 vintages. However, since 2010 the portfolio has experienced year-over-year declines in cumulative gross defaults (CGD). Furthermore, the 2013-A transaction has performed well with 1.14% in CGD to date, which extrapolates to 6.15% based on the pool factor of 81%.
High Foreign Obligor Concentration: The 2014-A pool consists of approximately 15% of loans made to foreign obligors, the majority of which are from Japan (approximately 12% of the pool). The Japan portfolio has historically performed consistent with the domestic portfolio. However, the trust could be exposed to weakness in foreign economies, which could result in increased defaults.
Available CE Structure: Initial hard credit enhancement (CE) is expected to be 16% and 3% for class A and B notes, respectively. Hard CE is composed of overcollateralization (OC), a reserve account and subordination. Soft CE is also provided by expected excess spread of 9.18% per annum.
Quality of Origination/Servicing: HRC has demonstrated sufficient abilities as an originator and servicer of timeshare loans. This is evidenced by the historical delinquency and loss performance of the managed portfolio and 2013-A transaction.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of HRC orGrand Vacations Services LLC (GVS) would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults could produce CGD levels higher than the base case. This would likely result in declines of CE 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. They are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust’s performance.
Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘Hilton Grand Vacations Trust 2014-A – Appendix’. This R&W is compared to those of typical R&W for the asset class as detailed in Fitch’s April 17, 2012 special report, ‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’.
Additional information is available at ‘www.fitchratings.com‘.
Applicable Criteria and Related Research:
–‘Global Structured Finance Rating Criteria’ (May 20, 2014);
–‘Criteria for Rating U.S. Timeshare Loan ABS’ dated June 10, 2013;
–‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance’ (April 17, 2012);
–‘Hilton Grand Vacations Trust 2014-A – Appendix’ (June 6, 2014).
Applicable Criteria and Related Research:
Criteria for Rating U.S. Timeshare Loan ABS
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions
Hilton Grand Vacations Trust 2014-A — Appendix
Global Structured Finance Rating Criteria
Margaret Rowe, +1 312-368-3167
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
Du Trieu, +1 312-368-2091
Hylton Heard, +1 212-908-0214
Sandro Scenga, +1 212-908-0278
Source: Fitch Ratings