A $160 million timeshare securitization from Trendwest Resorts priced last week, making it the 27th time share deal since 1992. Expansion in the timeshare industry, along with timeshare collateral being fairly attractive versus other real-estate asset-backed securities, is helping lead to further securitizations in the industry.
A majority of timeshare transactions are done in accordance with Rule 144A, mainly because of their small size. Most deals are in the $100 million to $200 million range.
What makes these deals attractive versus manufactured housing or recreational vehicle securitizations is the borrower and collateral profile.
According to analysts at Credit Suisse First Boston, which published a report on the sector, most borrowers of timeshare loans are in their mid-50s, and have income of over $75,000. Loan sizes are usually $10,000 to $15,000 and range from five to ten years, with a seven-year loan being the average.
"The borrowers who do this are for the most part going to be people who have a good paying capacity," said a CSFB analyst.
CSFB is projecting timeshare sales to reach $6 billion for the year with further growth in the industry expected. Major hotel corporations are expanding their business into the timeshare sector, and some are purchasing smaller independently-owned companies. This could create new arenas for securitization.
"By using their brand name, that's how they're expanding into the timeshare industry," the analyst said. "They have more access to capital markets, where timeshare ABS becomes a way for them to fund their growth in the timeshare market." An example of this is the purchase of Vistana by Starwood Corp.
Smaller companies have a harder time tapping into the ABS market, because it is easier for them to warehouse receivables than do transactions because of their size.
"With the changing of the players that are in the industry, I think that might lend itself to a case of saying that there might be more securitization," the analyst said.
Timeshare deals price comparably to manufactured housing deals, but due to tiering, triple-A rated tranches can vary as much as 15 to 25 basis points.
"It varies a lot depending on who the issuer is," the analyst said. "A lot of it depends on who the developer is that's doing the deal," as well as the servicer.