Marriott Vacation Worldwide had to pay up for an AAA on its next timeshare loan securitization from Fitch Ratings.

The senior tranche of notes to be issued in the $350 million MVW Owner Trust 2018-1 benefits from 28.05% credit enhancement; that’s four percentage points higher than the 24% enhancement on the senior tranche issued in Marriott’s prior deal, completed in August 2017.

The risks in the transaction have increased by several measures, according to Fitch. For one, the weighted average FICO score of the borrowers has decreased, to 736, although it is still “consistent” with prior transactions.

Additionally, the size of the prefunding account has risen to 25% of the initial note balance transaction from 16% for the prior transaction. This increases the risk that, as these funds are eventually put to work, there will be some drift in the credit characteristics of the overall pool. However, the eligibility criteria for the additional collateral are tighter than the criteria for 2017 transaction, with a lower foreign obligor limit (8% versus 10%) and a slightly higher minimum weighted average annual percentage weight of 12.25% versus 11.75%.

Like prior transactions, this one allows the sponsor to repurchase defaulted loans and replace them with new loans, though it is not obliged to do so. Unlike Marriott’s previous timeshare securitizations, however, the new deal also allows the sponsor to substitute new loans for loans that are repaid when the borrower upgrades to a new product. Both types of substitutions are limited to 20% of the pool balance.

On a positive note, weighted average seasoning of the collateral has increased to 12 months from seven months for the prior transaction. This is due to the inclusion of collateral from the 2010-1 transaction that was called.

As a result of the overall decline in credit quality, Fitch has increased its expectations for cumulative gross defaults in the latest transaction to 10.80% from 10.25% for the 2017 transaction.

In addition to the $261.43 million senior tranche of Class A notes, two tranches of subordinate notes will be issues: $53.76 million of Class B notes with 13.15% credit enhancement are provisionally rated A and $34.82 million of Class C notes with 3.5% credit enhancement are rated BBB.

All three tranches have a legal final maturity of January 2036.

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