Wyndham Destinations has increased the level of investor protection on its next offering of bonds backed by timeshare loans to offset the slightly weaker collateral.
Credit enhancement has increased on the three senior classes of notes will be issued in the $350 million transaction, Sierra Timeshare Receivables 2018-3, according to Fitch Ratings. The Class A notes benefit from 62.5% CE, up 0.75% from the prior transaction. The Class B notes benefit from 37.15% CE, up 3.1%; and the Class C notes benefit from 16.55% CE, up 2.7%.
The increase is primarily attributable to the inclusion of a Class D tranche, which increases the amount of subordination available to the other classes.
The increased subordination offset a decrease in other forms of CE, according to Fitch. The overcollateralization or excess collateral, is just 2%, down 9.35%, and excess spread and is expected to be 8.97% per annum, which is down from 9.82%.
Barclays Capital is the lead underwriter.
Fitch expects cumulative gross defaults to reach 19.40% of the initial collateral balance over the life of the deal, up slightly from 19.3% for the prior deal. This reflects a collateral pool with a weighted average original FICO score of 723 (WA current FICO of 720), seasoning of approximately 10 months and weakening performance trends. While, overall, 2018-3 is comparable to the prior transaction, there have been "slight negative shifts from a FICO band perspective,” the resale report states.
As with other transaction, Wyndham has the right, but not the obligation, to purchase or make substitutions for defaulted loans up to 20% of the initial collateral balance As such, Fitch did not give explicit credit to the repurchase option.
Approximately 70.3% of the collateral for Sierra 2018-3 was originated by Wyndham Vacation Resorts, up from 68.1% in series 2018-2. The remaining 29.7% was originated by Wyndham Resorts Development Corp., which is down from 31.9% in 2018-2. On a like-for-like FICO score basis, Wyndham Resorts loans on average perform better than Wyndham Vacation loans.
Among other rating considerations, the average principal balance for 2018-3 increased to $21,785 from $20,932 in 2018-2. Fitch attributed the increase to the decreased seasoning of collateral from previous deals that have been called. Called collateral is further amortized and has a lower current principal balance than recently originated collateral. In prior transactions the average balance ranged between $16,203 and $23,615 since the 2011-1 securitization.
