Fitch Publishes Updated Criteria for Rating U.S. Timeshare Loan ABS

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings today published an updated asset-backed sector specific criteria report. There have been no material changes from the previous version, and therefore Fitch expects no impact on outstanding ratings.

This report updates and replaces the prior criteria report 'Criteria for Rating U.S. Timeshare Loan ABS', dated June 9, 2014.

The report presents Fitch's analytical approach to rating U.S. Timeshare Loan ABS and outlines the unique features of these transactions. Additionally, the report details key rating drivers associated with U.S. timeshare loan ABS as detailed below.

KEY RATING DRIVERS

Credit Analysis (Borrower Risk): Delinquencies, defaults, recoveries and net losses (if applicable), prepayments, and the associated timing of each are key rating drivers in timeshare loan ABS. As such, Fitch analyzes historical, managed static pool and prior securitization data when deriving a base case proxy and performance assumptions. Fitch expects historical data to be split into predictive subsets where appropriate (e.g. Fair Isaac Corp. [FICO] bands).

Specifically, Fitch analyzes the collateral characteristics of the pool of loans underlying a prospective timeshare loan securitization to determine the overall credit risk present in that particular pool. A base case cumulative gross default (CGD) proxy is derived according to the proposed pool composition. The base case CGD proxy is Fitch's default rate expectation on a pool of timeshare loans. (The terms 'proxy' and 'default expectation' are used interchangeably.)

Structural Analysis: Structural features have a significant impact on timeshare ABS performance. As such, Fitch uses an internal, proprietary cash flow model to evaluate transaction structures by stressing the various performance assumptions mentioned above and assessing their impact on payments to noteholders.

Counterparty Analysis: Counterparty exposures can pose a risk to transactions if the relevant counterparties are a source of credit or performance weakness. The analysis incorporates a review of the counterparties of a timeshare ABS transaction to determine consistency with Fitch's counterparty criteria titled 'Counterparty Criteria for Structured Finance and Covered Bonds,' dated May 2014, available on Fitch's website at 'www.fitchratings.com'. Fitch also conducts an operational review that covers various aspects of the business such as originations, underwriting, and servicing.

Legal Risks: The performance of timeshare ABS is largely dependent on a sound legal framework. As such, Fitch reviews the legal structure and the opinions furnished to confirm that cash flow derived from the assets will not be impaired or diminished. This could potentially occur due to the bankruptcy or insolvency of the originator or any other transaction party, the trustee's lack of a perfected security interest in the assets, or taxation, if legal mitigants are absent.

Macroeconomic Risks: The economic environment can have a material impact on the performance of U.S. timeshare loan ABS. As such, Fitch takes into consideration the strength of the U.S. economy as well as future expectations. Adjustments may be made to the base case default proxy or other assumptions if appropriate, based on Fitch's expectation.

Additional information is available at 'www.fitchratings.com'

Criteria for Rating U.S. Timeshare Loan ABS

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=866653

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

View source version on businesswire.com: http://www.businesswire.com/news/home/20150603006565/en/

Fitch Ratings
Du Trieu
Senior Director
+1-312-368-2091
Fitch Ratings, Inc.
70 W. Madison St.
Chicago, IL 60602
or
John Bella, Jr.
Managing Director
+1-212-908-0243
or
Media Relations:
Sandro Scenga, +1 212-908-0278
[email protected]

Source: Fitch Ratings

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