Marriot Vacation Worldwide is making its annual trip to the securitization market with timeshare loans that have better credit characteristics than those of its 2016 deal. But the sponsor still had to pay up to get a higher credit rating.
The collateral for the $350 million MVW Owner Trust 2017-1 features a higher average FICO score of 741, up four points from 2016 and the highest to date in a Marriott securitization. Another improvement, according to Fitch Ratings, is the fact that just under 8% of borrowers live outside the U.S. or Canada, down from nearly 17% in the 2016 transaction and between 12% and 25% in the prior six deals.
According to Fitch, domestic borrowers generally perform better and allow for greater visibility regarding credit quality.
Another positive change, according to Fitch, is the fact that the prefunding account for the 2017-1 transaction will hold no more than 16% of the initial note balance, down from 20% in 2016-1.
Moreover, the prefunding eligibility criteria for 2017-1 is tighter than the criteria for 2016-1, most notably with a higher WA FICO (735 vs. 730), lower foreign obligor limit (10% vs. 22%), and a lower greater than 10 year loan limit (10% vs. 15%).
However, a decline in seasoning caused Fitch to increase its cumulative gains default proxy (CGD), which it uses to express loss expectations for timeshare ABS. In this latest deal, Fitch expects a CGD of 10.55%, higher than expectations for its 2016 and 2015 offerings (10.50% and 10%, respectively).The average seasoning of the transaction is six months, compared to 18 months and 43 months in the previous two Marriott deals. (Fitch attributed the lower seasoning to the fact that the deal does not have any collateral from prior deals that were called, or repaid early.)
The senior, $276 million tranche of notes to be issued is rated AAA by Fitch and benefits from 24% credit enhancement. According to Fitch Ratings, this is the first Marriott transaction since 2009 with an AAA rated senior tranche. It is also the only timeshare deal rated by Fitch from any sponsor with an AAA rating.
By comparison, the senior tranche of the 2016 deal had just 11% credit enhancement and was rated A.
The latest deal also includes two subordinate tranches, one of them with 11% credit enhancement that is rated A. The most subordinate tranche, rated triple-B, benefits from 3.5% credit enhancement.
All tranches of notes will pay a fixed coupon and will reach maturity in December 2034.
Bank of America Merrill Lynch is the structuring lead manager.
Wells Fargo will serve as the backup servicer for the transaction.
MVW is the exclusive worldwide developer, marketer, seller, and manager of vacation ownership products under the Marriott Vacation Club, Grand Residences, and Ritz-Carlton Destination Club brands. This is the nineteenth securitization to date that MVW has sponsored.