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Amid market recovery, Holiday Inn launches riskier timeshare ABS

Holiday Inn Club Vacations Inc. (HICV) is approaching the securitization market with a $194.2 million transaction that taps another third-party provider relationship to source the loans.

BofA Securities is the lead underwriter on the deal, called Accelerated 2021-1HLLC and provides investors with less credit enhancement (CE) and greater borrower risk than its deal last September. After the Accelerated Assets 2018-1, LLC, this is the second securitization for AA.

The capital structure features a AAA-rated, $74.5 tranche; an A-rated $58.4 million piece; a $39.7 million portion rated BBB; and a BB-rated, $21.6 piece. The tranches respectively carry CE of 66.5%, 39.4%, 21.0% and 11.0%, lower than last September’s transaction carrying CE respectively of 71.2%, 47.5%, 26.4% and 16.6%.

Fitch Ratings says that the loss coverage is subsequently lower for the notes but nevertheless sufficient to cover required rating multiples.

A shift of the recovery ratio early amortization event to a sequential order trigger event partially alleviates the decreased credit enhancement’s impact on loss coverage levels in the stress scenarios, the rating agency says.

Another consideration for investors is the lower weighted average FICO score of the time-share borrowers, at 719 in the current deal compared to 735 in last fall’s.

Timeshare occupancy rates declined significantly in 2020 as a result of the pandemic, then rebounded to pre-pandemic levels in 2021 as demand for tourism and travel returned this year. Fitch notes, however, that rising coronavirus infection rates could slow or reverse the current recovery.

The rating agency also points to a weaker feature providing the option to repurchase defaulted timeshare loans. Fitch notes that the timeshare transactions it has rated all carry the option, and none have experienced losses. However, 2021-1H is structured to allow the sponsor the option to repurchase defaulted timeshare loans at 10% of the defaulted loan balance.

Therefore, Fitch says, unlike other timeshare ABS transactions to date, 2021-1H will experience net losses prior to reaching its repurchase cap of 35%. Further, Fitch says, it does not give credit to the repurchases since they are considered optional and not mandatory. As such, Fitch’s analysis focuses on gross defaults and does not consider repurchases.

The timeshare loans in the securitized pool were originated by HICV and Wilson Resort Finance, an indirect, wholly-owned subsidiary of HICV, which will service the transaction.

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