NEW YORK (July 17, 2014) — Fitch Ratings assigns the following ratings to Sierra Timeshare 2014-2 Receivables Funding LLC:
–$276,920,000 class A asset-backed notes ‘Asf'; Outlook Stable;
–$73,080,000 class B asset-backed notes ‘BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Consistent Collateral: Series 2014-2 has a comparable concentration of WVRI and WRDC loans relative to the prior transaction. Fitch has determined that, on a like-for-like FICO basis, WRDC’s receivables perform better than those of WVRI. Additionally, 2014-2 includes 3.4% of Shell loans (integrated within the WVRI platform) for which historical static pool default data were not provided. An additive stress was incorporated into Fitch’s base case proxy for 2014-2 to account for the lack of performance data on this portion of the receivables.
Recent Stabilization in WVRI Performance: Similar to other timeshare originators, Wyndham Worldwide’s delinquency and default performance exhibited notable increases in the 2007-2008 vintages. However, WRDC’s performance has improved since 2009, while WVRI continues to experience high defaults. Nonetheless, the 2013 vintage within the WVRI portfolio demonstrates relative stabilization in default performance.
Sufficient CE Structure: Initial hard credit enhancement (CE) is expected to be 30.50% and 11.50% for class A and B notes, respectively. Hard CE is composed of overcollateralization (OC), a letter of credit (LOC) reserve account and subordination. Soft CE is also provided by excess spread and is expected to be 10.27% 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 1, 2014. Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘Sierra Timeshare 2014-2 Receivables Funding 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:
–‘Sierra Timeshare 2014-2 Receivable Funding LLC’ (July 1, 2014);
–‘Sierra Timeshare 2014-2 Receivable Funding LLC — Appendix’ (July 1, 2014);
–‘Criteria for Rating U.S. Timeshare Loan ABS’ (June 9, 2014);
–‘Global Structured Finance Rating Criteria’ (May 20, 2014);
–‘Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions’ (April 17, 2012).
Applicable Criteria and Related Research:
Sierra Timeshare 2014-2 Receivables Funding LLC (US ABS)
Sierra Timeshare 2014-2 Receivables Funding LLC — Appendix
Criteria for Rating U.S. Timeshare Loan ABS
Global Structured Finance Rating Criteria
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions
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Source: Fitch Ratings