Hilton adds prefunding feature for $300M timeshare loan securitization

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Hilton Resorts Corp. is including a first-time prefunding account to a timeshare loan securitization.

According to presale reports, Hilton will deposit cash into a prefunding account to add up to $21 million in additional collateral to its proposed $300 million Hilton Grand Vacations Trust 2019-A timeshare ABS.

Hilton will have until Oct. 31 to acquire new loans originated by Hilton Resorts Corp. to add to the existing pool of $283.6 million in total loan balances. The final pool tally is expected to reach 13,005 loans with $308.12 million in loan balances, according to Fitch Ratings and S&P Global Ratings.

Hilton has not previously included prefunding accounts in four prior securitizations of static loans pools through the Hilton Grand Vacations trust. Since future collateral is unknown beyond the minimum eligible credit criteria to be included in the pool, prefunding accounts run the risk of potential credit deterioration if lower-quality loans are added.

But the timeshare loans in the Hilton 2019-A pool are prime-quality loans, with a weighted average borrower FICO of 746 and 22 months of average seasoning (on original terms of 119 months). The pool’s loans have an average balance of $23,693.

All of the loans were originated by Hilton Resorts Corp, a subsidiary of Hilton Grand Vacations, Inc.

The loans will back three classes of notes, including $215.5 million Class A notes tranche with expected triple-A ratings from Fitch and S&P. The senior notes benefit from 30.25% credit enhancement, with Fitch projecting gross default rates at 12%. (S&P’s expected default tally is only 9.29% for the domestic loans in the pool).

The WA FICO is down slightly from the 750 average in Hilton’s previous timeshare securitization in 2018. But the deal has a “nominal” increase in the share of loans to foreign borrowers to 14.8%, including 12.4% from Japan. Exposure to foreign obligors could expose the deal to weakness in offshore economies, resulting in higher cumulative gross defaults.

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