At a time when the demand for timeshare ABS is on the rise and the sector appears relatively stable, Standard & Poor's has introduced its U.S. Timeshare Securitization Performance Index (TSPI), a report that will highlight the performance of all timeshare term issuance rated by S&P since 2001.
The new quarterly index includes the following information: historical performance of rated timeshare term issuance, term issuance activity in the most recent quarter, key performance metrics on the underlying timeshare loans, and rating actions on outstanding transactions in the most recent quarter.
"The index serves as an example of a continued effort to bring further transparency and clarity to the structured finance market," said S&P credit analyst Aaron Jones in a conference call on the index last week. He added that after observing the growth in the timeshare securitization market over the last five years, S&P wanted to provide market participants with a useful benchmark for sector performance . "Another goal was to make standard definitions, to filter data from diverse formats and to provide timeshare securitization performance at both the sector and deal level," Jones added
Historically, overall performance of the securitized timeshare loans covered by the TSPI has been stable, S&P said. The average total delinquency rate during the last quarter decreased 30 basis points from last year's average. Moreover, excess spread rates remained relatively strong in the high 7% area, and defaults have historically remained below 80 basis points per month. S&P also noted that the majority of defaulted loans have either been repurchased or substituted out of the trust by sellers.
Timeshare deals saw no rating changes, either good or bad, in the first quarter. However, several factors such as the growing percentage of precompletion loans - which are timeshare loans on units that have not been completed and are not yet ready for occupancy - in the collateral pools backing timeshare transactions as well as increasing loan sizes illustrate the rising demand for and the continuing evolution of the product.
When asked why they felt a need to monitor the sector quarterly, S&P analysts said in a phone interview that sector volatility was not the driving force behind the creation of the new index. Instead, they said that the sector has reached a critical mass making the timing right for monitoring the sector's performance more closely.
Looking ahead, "we expect to see continued demand for securitization in the timeshare sector, particularly from large developers that require liquidity and cost-effective funding sources," said S&P the report. "Additionally, the demand for vacation ownership interests is expected to grow as the industry continues to evolve and reinvent itself, offering various flexible vacation ownership options to a myriad of obligors."
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