Fitch Rates Orange Lake Timeshare Trust 2016-A

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Orange Lake Timeshare Trust 2016-A (OLTT 2016-A):

--$138,159,000 class A asset-backed notes 'Asf'; Outlook Stable;

--$38,030,000 class B asset-backed notes 'BBBsf'; Outlook Stable.

KEY RATING DRIVERS

Stable Borrower Credit Quality: The weighted average (WA) FICO score of OLTT 2016-A is 719, up slightly from 717 in 2015-A, but down notably from 733 in 2014-A. Similarly, OLTT 2016-A contains 49.3% upgraded loans, which is up slightly from 2015-A (47.6%) but down from 2014-A (53.0%). Due to the shifting credit quality over the prior two transactions, Fitch's cumulative gross default (CGD) expectation for OLTT 2016-A is lower than for 2015-A, but higher than for 2014-A.

Improved Performance: OLCC's delinquency and default performance exhibited material increases during the most recent recession. However, notable improvement can be seen in the 2010-2012 vintages. While the 2013-2015 vintages display higher CGDs than the 2010-2012 vintages, they are still performing better than recessionary levels. In deriving its CGD proxy of 18.00%, Fitch focused on extrapolations of the 2005-2011 vintages.

Sufficient CE Structure: Initial hard credit enhancement (CE) has decreased relative to the 2015-A transaction and is 30.75% and 11.00% for the class A and B notes, respectively. These CE levels are in line with the 2014-A and 2012-A transactions. CE is composed of overcollateralization (OC), a reserve account, subordination and excess spread.

Quality of Origination/Servicing: OLCC has demonstrated sufficient abilities as an originator and servicer of timeshare loans. While the resort footprint has grown in recent years, OLCC's managed portfolio, as well as 2016-A, remains heavily concentrated in its primary Orlando, FL resort.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of OLCC and WRF would not impair the timeliness of payments on the securities.

RATING SENSITIVITIES

Unanticipated increases in the frequency of defaults could produce cumulative gross default (CGD) levels higher than the base case and 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, and are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G-10

Fitch was also provided with due diligence information from Grant Thornton LLP. The due diligence information was provided on Form ABS Due Diligence-15E and focused on a comparison and re-computation of certain characteristics with respect to 100 sample loans. Fitch considered this information in its analysis, and the findings did not have an impact on our analysis.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by accessing the appendix referenced under 'Related Research' below. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions,' dated March 2, 2016.

Additional information is available at www.fitchratings.com.

Applicable Criteria

Counterparty Criteria for Structured Finance and Covered Bonds (pub. 01 Sep 2016)

https://www.fitchratings.com/site/re/886006

Criteria for Rating U.S. Timeshare Loan ABS (pub. 16 Jun 2016)

https://www.fitchratings.com/site/re/882873

Global Structured Finance Rating Criteria (pub. 27 Jun 2016)

https://www.fitchratings.com/site/re/883130

Related Research

Orange Lake Timeshare Trust 2016-A - Appendix

https://www.fitchratings.com/site/re/888973

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013715

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1013715&flm_nm=15e_1013715_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013715

Endorsement Policy

https://www.fitchratings.com/regulatory

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Source: Fitch Ratings

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