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Hilton prices $350M timeshare ABS; YTD issuance in sector at $2.5B

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Hilton Grand Vacations priced $350 million of bonds backed by timeshare loans this week, bringing issuance in the sector to $2.5 billion for the year to date, according to S&P Global Ratings. That’s up from $1.6 billion over the same period of 2017.

The $267.86 million senior tranche of notes, which has a weighted average life of 3.1 years and benefits from 25% subordination and overcollateralization, pays 58 basis points over interpolated swaps; it is rated triple-A by both S&P and Fitch Ratings.

Also on offer were $53.57 million of double A rated notes with 10% credit enhancement and $28.57 million of single A rated notes with 2% credit enhancement.

Bank of America Merrill Lynch was the lead underwriter.

The performance of 2015-2017 vintages of Hilton timeshare asset-backeds has worsened compared with 2010-2013 vintages, in part because of an increase in paid product exits, according to Fitch.

Fitch considers the credit quality of the loans in the latest collateral pool to be stronger than that of any prior Hilton transaction. The weighted average FICO score is 750, which Fitch considers to be up “materially” from 742 in the prior transaction, completed last year. Additionally, the pool has a weighted average seasoning of 17 months (a decline from 24 months in 2017-A), weighted average original equity of 25.7%, and 69% upgrades.

Among other credit considerations, approximately 11.3% of loans are to foreign obligors, the majority from Japan (approximately 10% of the pool). While the Japan portfolio has historically performed better than the domestic portfolio, the trust could be exposed to weakness in foreign economies, which could result in increased defaults, according to Fitch.

Fitch expects defaults to reach 10.75% of the original principal balance over the life of the deal; this is down from 11% for the prior deal, principally due to the improved credit quality of the collateral for the latest deal.

S&P expects cumulative gross defaults to be lower, at 7.9%

Hilton Grand Vacations was spun off from Hilton Worldwide in January 2017, after which it entered into a 100-year license agreement with its former parent giving it exclusive rights to Hilton marks and intellectual property in its vacation ownership business.

Hilton Grand Vacations developed its flagship property in Las Vegas in 1994. As of June 30, 2018, it had developed 23 timeshare resorts in Nevada, Florida, Hawaii, New York, Washington D.C., Utah and Japan and managed 8,367 timeshare units affiliated to one of two membership programs that are operated by Hilton Grand Vacations Club.

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