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.