NEW YORK, NY (Oct 16, 2014) — Fitch Ratings expects to assign the following ratings to the notes issued by Elara HGV Timeshare Issuer 2014-A, LLC:
–$107,530,000, class A asset-backed notes ‘Asf'; Outlook Stable;
–$12,650,000, class B asset-backed notes ‘BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Ratings Capped at ‘Asf': Given that this is the first ABS transaction by LV Tower, the limited managed pool data and the unique counterparty arrangements, the ratings for 2014-A were capped at ‘Asf’.
Strong Obligor Credit Quality: The 2014-A pool has a weighted average (WA) Fair Issac Corp. (FICO) score of 743. This is consistent with the recently issued HGVT 2014-A transaction. Based on the collateral pool, Fitch has arrived at a cumulative gross default (CGD) proxy of 13.00%.
Single Timeshare Site: The loans are associated with a single resort, Elara, in Las Vegas. However, these owners have the same usage and exchange rights as other HRC timeshare owners and become club members within HRC’s system. As such, the risk associated with a single site property is mitigated.
Presence of Prefunding Account: The 2014-A transaction features a prefunding account that will hold up to 10% of the initial note balance after the closing date to purchase eligible timeshare loans.
Available CE Structure: Initial hard credit enhancement (CE) is expected to be 16.00% and 6.00% for class A and B notes, respectively. Soft CE is also provided by excess spread and is expected to be 9.66% per annum.
Quality of Origination/Servicing: LV Tower and HRC have demonstrated sufficient abilities as an originator and servicer of timeshare loans, respectively. This is evidenced by the historical delinquency and loss performance of HRC’s managed portfolio and previous transactions.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of LV Tower, HRC or 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 and 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 by stressing both a transaction’s initial base case CGD and prepayment assumptions by 1.5x and 2x and examining the rating implications on all classes of issued notes. The 1.5x and 2x 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 October 14, 2014. Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in Elara HGV Timeshare Issuer 2014-A, LLC – Appendix’. These R&Ws are 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.
The presale report is available to all investors on Fitch’s website at ‘www.fitchratings.com’. For more information about Fitch’s comprehensive subscription service FitchResearch, which includes all presale reports, surveillance, and credit reports on more than 20 asset classes, contact product sales at +1-212-908-0800 or at ‘email@example.com’.
Additional information is available at ‘www.fitchratings.com’.
Applicable Criteria and Related Research:
–‘Elara HGV Timeshare Issuer 2014-A, LLC (Oct. 14, 2014)
–‘Elara HGV Timeshare Issuer 2014-A, LLC – Appendix’ (Oct. 14, 2014);
–‘Criteria for Rating U.S. Timeshare Loan ABS’ (June 9, 2014);
–‘Global Structured Finance Rating Criteria’ (Aug. 4, 2014);
–‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’ (April 17, 2012).
Applicable Criteria and Related Research: Elara HGV Timeshare Issuer 2014-A, LLC (US ABS)
Criteria for Rating U.S. Timeshare Loan ABS
Global Structured Finance Rating Criteria
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions
SOURCE: Fitch Ratings
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