Fitch Ratings expects to give a stable rating to $275 million in notes to be issued by Sierra Timeshare Receivables Funding.
The transaction includes AAAsf, rated Class A notes, Asf rated Class B notes, BBBsf rated Class C notes, and BBsf Class D notes, all of which mature in June 2040.
The collateral backing the notes consists of fixed-rate timeshare loans originated by Wyndham Vacation Resorts and Wyndham Resort Development Corp. Both are subsidiaries of Travel + Leisure Co., formerly known as Wyndham Destinations.
Wyndham Consumer Finance serves as seller, transfer party, servicer and sponsor of the securitization, Sierra 2022-2, and BofA Securities is the lead underwriter.
Nearly 70.96% of Sierra 2022-2 collateral consists of Wyndham Vacation Resorts originated loans, “based on a like-for-like FICO basis,” according to Fitch analysts John Krementowski and Jorge Plancarte, who wrote the report.
The weighted average original FICO score of the pool is 733, slightly higher than the 729 FICO score for the securitization, Sierra 2022-1. Fitch's cumulative gross default proxy for this pool is 22.5%, up from 22.25% for 2022-1, “given the current economic environment and consistent with the prior transaction,” the Fitch analysts wrote.
Initially, hard credit enhancement, which includes a reserve account and subordination in addition to CE, will be 66.1%, 44.5%, 21.7% and 12%, respectively for the class A, B, C and D notes. Credit enhancement is lower for the class A notes, and higher for B through D notes, to reflect overcollateralization and lower excess spread compared to 2022-1, “driven by higher coupon on the notes,” the analysts wrote.
Loss coverage for all notes is able to support default multiples of 3.25x, 2.25x, 1.5x and 1.25x for all notes, at 'AAAsf', 'Asf', 'BBBsf' and 'BBsf', respectively, the analysts noted.
To be eligible for securitization, a timeshare loan must comply with certain criteria as of the transaction cut-off date, according to the report. A key requirement is that the loans had an original equity percentage of 10% or more, at the time of the sale of the vacation ownership interests to the related obligor, which in this case are the two originators. Loans must comply with federal, state and local laws, cannot be in default or be 30 days or more delinquent, on scheduled payments and the original term cannot be longer than 180 months.
Fitch’s 2022 timeshare, asset-backed security sector outlook continues to be neutral. Despite lingering geopolitical and inflation risks, demand for tourism and travel, as measured by occupancy rates and bookings, has returned to pre-pandemic levels across most timeshare networks.
