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Hilton sponsors 2020's second vacation timeshare ABS

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Tourism and travel have cratered under the economic strains of the coronavirus pandemic, greatly impacting airlines and hotels.

But what has carried on in the hospitality industry are the ongoing payments on long-term vacation timeshare contracts.

Hilton Resorts Corp – a subsidiary of Hilton Grand Vacations – is sponsoring its sixth term securitization of vacation timeshare loan receivables used to secure a $300 million bond offering via Hilton Grand Vacations Trust 2020-A.

The transaction, collateralized by 13,810 loans with a total balance of $349.5 million, is the first for Hilton since August 2019 and the second timeshare ABS for 2020. Wyndham Destinations sponsored a $325 million securitization that closed May 1.

Hilton Resort’s deal priced Tuesday at a coupon of 2.74% for a $185.96 million Class A tranche of notes, with preliminary AAA ratings from S&P Global Ratings and Fitch Ratings.

The deal includes a $14.9 million prefunding account that was to add additional loans to the pool by the time of closing, but all of the additional receivables were on well-seasoned accounts that were previously collateral for Hilton Vacation’s 2014 securitization (which has been redeemed).

Hard initial credit enhancement for the deal of 44.9%, slightly higher than Hilton’s 2019 offering.

In April, S&P warned in a report that timeshare loan payments could slow for outstanding ABS deals in the esoteric class “due to travel restraints (including the government-mandated closure of resorts), the projected increase in unemployment, the resulting increase in bankruptcy filings, and the potential shift in consumer behavior, including payment priority on various loan obligations.”

Hilton is permitted to modify a maximum 5% of the loans included in the 2020-A collateral pool. At the time of closing, though, only 2% of the loans in the 2020-A pool had been granted modifications related to pandemic stresses.

Fitch has an estimated gross default proxy of 15% for the deal.

Hilton Resorts Corp. manages 9,551 timeshare units at properties that are affiliated with one of two membership programs operated by Hilton Grand Vacations Club, according to S&P. The two membership programs, Hilton Grand Vacations Club and The Hilton Club, combined have more than 328,000 club members.

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Vacation timeshare