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

CHICAGO--()--Link to Fitch Ratings' Report: Criteria for Rating U.S. Timeshare Loan ABS
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749780

Fitch Ratings today published an updated Asset-Backed sector specific criteria report titled 'Criteria for Rating U.S. Timeshare Loan ABS.'

There have been no material changes from the previous version; therefore, Fitch expects no impact on outstanding ratings.

This report updates and replaces the prior criteria report with the title 'Criteria for Rating U.S. Timeshare Loan ABS dated June 2013.

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 forecast base case cumulative gross default (CGD) proxy is derived for each applicable characteristic and then weighted according to the proposed pool composition to determine the weighted average (WA) CGD for the transaction.

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: The performance of timeshare ABS can rely heavily on the originator/seller/servicer and other counterparties. Thus, Fitch conducts a review, and certain findings of the originator, seller, and servicer may result in qualitative adjustments to assumptions used to generate base case CGDs.

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'

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Contacts

Fitch Ratings
Du Trieu
Senior Director
+1 312-368-2091
Fitch Ratings, Inc.
70 W. Madison St.
Chicago IL, 60602
or
Margaret Rowe
Director
+1 312-368-3167
or
Bradley Sohl
Senior Director
+1 212-908-0792
or
Media Relations, New York
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com

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Contacts

Fitch Ratings
Du Trieu
Senior Director
+1 312-368-2091
Fitch Ratings, Inc.
70 W. Madison St.
Chicago IL, 60602
or
Margaret Rowe
Director
+1 312-368-3167
or
Bradley Sohl
Senior Director
+1 212-908-0792
or
Media Relations, New York
Sandro Scenga, +1 212-908-0278
sandro.scenga@fitchratings.com