March 10 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings expects to assign the following ratings and Rating Outlooks to Sierra Timeshare 2014-1 Receivables Funding LLC:
—$231,820,000 class A asset-backed notes ‘Asf’; Outlook Stable;
—$68,180,000 class B asset-backed notes ‘BBBsf’; Outlook Stable.
Consistent Collateral: Approximately 65.30% of Sierra 2014-1 consists of WVRI-originated loans (the remaining are WRDC loans). Fitch has determined that WRDC’s receivables perform better than WVRI’s on a like-for-like FICO basis. The weighted average (WA) Original FICO score of the pool is 717.
Continued Weak WVRI Performance: Similar to other timeshare originators and other consumer asset types, Wyndham Worldwide’s delinquency and default performance exhibited notable increases in the 2007?2008 vintages. While more recent vintages are displaying improved performance under the WRDC platform, the improvement is not evident under the WVRI platform.
Sufficient CE Structure: Initial hard credit enhancement (CE) is expected to be 34.50% and 14.50% for class A and B notes, respectively. Hard CE is composed of overcollateralization (OC), a letter of credit (LOC) reserve account and subordination. Soft CE is also provided by excess spread and is expected to be 9.89% per annum.
Quality of Origination/Servicing: Wyndham Worldwide has demonstrated sufficient abilities as an originator and servicer of timeshare loans. This is evidenced by the historical delinquency and loss performance of securitized trusts and of the managed portfolio.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of Wyndham Worldwide and Wyndham Consumer Finance, Inc. (WCF) would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults could produce cumulative gross default (CGD) levels higher than the base case. This would likely result in declines of credit enhancement and remaining default coverage levels available to the notes. Additionally, unanticipated increases in prepayment activity could also result in a decline in coverage. Decreased default coverage may make certain note ratings susceptible to potential negative rating actions, depending on the extent of the decline in coverage.
Thus, Fitch conducts sensitivity analysis stressing both a transaction’s initial base case CGD and prepayment assumptions by 1.5x and 2.0x and examining the rating implications on all classes of issued notes. The 1.5x and 2.0x increases of the base case CGD and prepayment assumptions represent moderate and severe stresses, respectively. As such, they are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust’s performance.
Key rating drivers and rating densitivities are further detailed in the presale report (published today). Fitch’s analysis of the Representations and Warranties (R&W) of this transaction can be found in ‘Sierra Timeshare 2014-1 Receivables Funding LLC - Appendix’. These R&Ws are compared to those of typical R&W for the asset class as detailed in Fitch’s April 17, 2012 special report (referenced at the end of the press release).
The presale report is available at ‘www.fitchratings.com’ or by clicking on the below link.
Link to Fitch Ratings’ Report: Sierra Timeshare 2014-1 Receivables Funding LLC (US ABS)