Total delinquencies and monthly defaults on U.S. timeshare ABS dropped in 3Q09, according to the latest timeshare ABS index from Fitch Ratings.

However, because of seasonal patterns, the rating agency expects that performance will actually worsen in the coming months.

"Timeshare  performance  will  continue  to  follow traditional seasonal delinquency patterns, resulting in increasing delinquencies and defaults through  the  winter  months,’  Director Brad Sohl said. ‘However, ample credit  enhancement  within these transactions should continue to ensure limited negative rating actions.’

Most  timeshare  ABS  are  structured  with considerable credit enhancement levels  to  senior  classes, protecting  those classes  from  some potential  downgrades. 

While a few transactions include less enhanced subordinate  classes,  these  classes  have  thus far been able to support multiples  of  expected  defaults  commensurate with current ratings. Considering this, the rating agency’s outlook for asset performance remains declining, while the Rating Outlook remains Stable for the timeshare ABS sector.

Total  delinquencies  dropped  to  a  2009  low of 4.36% in July, down close to 22% from the all-time high of 5.58% realized in February.

This reduction is  consistent with the seasonal performance improvement that is  typically  seen  in timeshare ABS. However, total delinquency levels have  since increased, reaching 4.64% at the end of 3Q09, 13% higher than the same period in 2008.

Default experience has followed a similar pattern, as expected. Monthly defaults  receded to .71% in August 2009, which is the lowest level since October of the  prior year.  However,  September  default  activity rose to .76%, lagging the delinquency performance deterioration by one month.

On an annualized basis (rolling 12 months), default experience is still breaching historical peaks, reaching 9.21% for the index in September, as  U.S.  timeshare borrowers are still struggling given the current economic environment.

The rating agency’s timeshare ABS index is an aggregation of performance statistics on pools   of  securitized timeshare  loans  originated by different developers.  

Expected cumulative gross  defaults  on underlying deals can range from 10% to above 20%. Even though delinquencies and defaults might vary on an absolute basis, most transactions supporting the index show similar overall trends.

The  Fitch timeshare performance index  summarizes  average  monthly delinquency — over  30 days — and gross default trends tracked in Fitch’s database  of timeshare ABS dating back to
January 1997 and is available on a quarterly basis.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.