Las Vegas - The small, tidy timeshare loan ABS market performed well in 2006, thanks to new product offerings that increased sales. Prospects should be equally good for 2007, said several industry professionals yesterday during a panel reviewing the timeshare sector at the ASF 2007 conference in Las Vegas last week.
Issuance amounted to $1.5 billion in 2006. Increased supply from established issuers should boost volumes by 10%-20% from last year's total, said Andrew Yuder, a managing director at BB&T Capital Markets.
An array of industry trends underpins that prediction for the sector, according to several panelists. For one, 30% of potential timeshare customers are buying more loan products. As lenders look to make the products more affordable, loan terms might extend to between 12 and 15 years, said Yuder.
Another reason for optimism: more timeshare customers will opt for whole ownership of timeshare properties, said Thomas Denkler, a managing director at AIG Global Investment Group. Further, the concept of owning timeshares is spreading throughout the U.S., and lenders and developers expect to sell more timeshares overseas.
Demographics also plays a big role in driving new business to the sector, said Liz Cohen, a treasurer for Wyndham Worldwide Corp.
Retiring baby boomers are finding that timeshare ownership fits well into their lifestyles and spending habits. It also helps that they are generally financially stable, have money in the bank and that financial institutions generally like to lend to them.
"That is what is driving a lot of growth," said Cohen.
While deteriorating credit in the subprime mortgage sector was the main theme at the conference this year, timeshare loan ABS professionals could attest to strong performance among bonds issued from that sector, with several upgrades during the year.
Changes in debt repayment habits in the HELOC sector could also benefit timeshare ABS, Yuder noted. Timeshare loan borrowers used to pay off their debts by drawing down on HELOCs. Given tougher conditions in the HEL market, timeshare loan ABS should generate lower prepayment levels, enabling issuers to sell more product, Yuder said.
Whereas the subprime market featured a lot of introductory loan products in 2006, such as ARMs that saddled borrowers with hefty debt service payments after rates reset, timeshare loan products typically do not vary as much. Timeshare loan borrowers usually have a fixed set of payments, Cohen said.
"They know what they are signing up for," Cohen said.
At the end of the day, said panelists, keeping customers happy and giving them a selection of enjoyable leisure options drives growth in timeshare ABS business. Wyndham offers a system that allows timeshare customers to accumulate points and trade them in for varying vacation options.
"Few people want to go on the same vacation every year," she said.
Those who buy timeshares want consistently high service, Cohen said.
"The worst thing you could do to someone is give them shoddy or shabby accommodations for their hard-earned vacation," she said. "If you ruin someone's vacation, they will not pay on their timeshare."
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