Wyndham Consumer Finance (WCF) is sponsoring a $326.9 million asset-backed securitization deal that will have timeshare loans as its collateral, issuing notes through the Sierra Timeshare 2023-3 Receivables Funding.
Atlas SP Securities is the manager on the deal, according to the Asset Securitization Report’s deal database, while SMBC Nikko Securities America is the initial note purchaser on the deal, says Moody’s Investors Service. Fitch Ratings notes that The Bank of Nova Scotia provides the letter of credit. The transaction will issue notes through four classes of notes, plus a $26.8 million, overcollateralization (OC) pool.
The trust will repay investors through a senior-subordinate structure. All of the notes have three things in common: the same legal final maturity date, Sept. 20, 2040; an initial overcollateralization of 8.25; and an initial reserve of 2.50%. They diverge along the lines of total hard credit enhancement, though, Classes A, B, C, and D have total hard CE of 64.75%, 40.50%, 21.00% and 10.75%, respectively.
Fitch notes that the pool has about 12,406 loans. They have an average balance of $26,356, with a weighted average (WA) coupon of 14.81%, and a WA remaining term of 114 months.
Moody’s pointed out that while the borrowers on the underlying timeshare loans do have relatively strong credit profiles, with a weighted average (WA) FICO score of 737, the default level on the securitization vintages of 2017-2019 is higher than that of previous deals. The rating agency attributes that to legal-hold defaults. In that situation obligors stop making payments after a certain third-party comes in offering to help share borrowers exit their contracts, the rating agency said.
“Early performance on the 2022 vintage is weaker than the 2020-2021 ABS vintages for the same period,” ratings analysts wrote. “In addition the early performance for more recent managed portfolio vintages has weakened.”
That is just one major concern that Moody’s expressed. Another is that the relatively high level of repurchases and substitutions increases the risk of sale recharacterizations. WCF can repurchase or substitute defaulted timeshare loans up to 35% of the initial pool balance, and in so doing can reprocess and resell the timeshare points to a new buyer that exceeds the defaulted loan amount. In this particular case the trouble is that 35% is a high substitution and repurchase ratio, relative to the pool balance, Moody’s said. This runs the risk of a court recharacterizing the loan sales to depositors as a form of financing, the company said.
On a more positive note, however, the repurchase of defaulted loans could increase the pool’s recovery rate, therefore reducing losses in the timeshare ABS, Moody’s said.
Fitch Ratings will also assign ratings to the notes, and expects to assign ‘AAA’ to the class A notes; ‘A’ to the class B notes; and ‘BBB’ and ‘BB-‘ to classes C and D, it said. Moody’s intends to assign ratings of ‘Aaa’ to the class A notes; ‘A2’ to the class B notes and ‘Baa2’ and ‘Ba3’ to classes C and D, respectively.