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

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings today published its 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 with 'Criteria for Rating U.S. Timeshare Loan ABS', dated June 3, 2015.

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 ABS as detailed below.

KEY RATING DRIVERS

Credit Analysis (Borrower Risk): Delinquencies, defaults, recoveries, prepayments and the associated timing of each are key rating drivers in timeshare loan ABS. Fitch analyzes historical managed static pool and prior securitization data when deriving a base case cumulative gross default (CGD) proxy and performance assumptions for these transactions. 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.

The terms "proxy" and "default expectation" are used interchangeably herein.

Forward-Looking Approach on CGD Proxy: Fitch derives its main analytical assumption, the base case CGD proxy, by examining fully amortized historical vintage default curves, extrapolating incomplete vintage curves, matching future expectations with any relevant previous vintage data and weighting by relevant pool credit characteristics. Additionally, a margin of safety is built into the base case by weighting previous recessionary vintages and adding adjustments for future unemployment expectations, where applicable.

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 Exposures: Counterparty exposures can pose a risk to transactions if the relevant counterparties are a source of credit or performance weakness. Fitch's analysis includes a review of counterparties in accordance with "Exposure Draft: Counterparty Criteria for Structured Finance and Covered Bonds" (the counterparty criteria; dated April 2016), available on our website at www.fitchratings.com.

Originator/Seller/Servicer Operational Review: Disruption to servicing is a potential risk to the performance of timeshare ABS transactions. Fitch's analysis includes a review of the corporate and operational activities (originations, underwriting and servicing) of the seller/servicer(s) to assess operational risks and the ability of the servicer to assume the servicing role for the transaction.

Legal Risks: Legal risks can affect the rating in the event that legal uncertainties pose a threat to the availability of cash flows or the collateral itself. Fitch's legal analysis includes a review of the legal structure and legal opinions furnished by the originator to confirm cash flow derived from the assets will not be impaired (either as a result of the bankruptcy or insolvency of the originator or any other transaction party, such as a swap counterparty, or the trustee's lack of a perfected first-priority security interest in the assets) or diminished (as a result of taxation).

Macroeconomic Risks: The economic environment can have a material impact on the performance of U.S. timeshare loan ABS. Fitch takes into consideration the strength of the U.S. economy as well as global implications that could impact future expectations by assessing key macroeconomic indicators related to asset performance, such as the unemployment rate.

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=882873

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/20160616006151/en/

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

Source: Fitch Ratings

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