CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns the following ratings to Orange Lake Timeshare Trust 2014-A:
--$123,638,000 class A asset-backed notes 'Asf'; Outlook Stable;
--$25,119,000 class B asset-backed notes 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Strong Borrower Credit Quality: The WA FICO score of OLTT 2014-A is 732, down from 735 in 2012-A, but up from 652 in 2006-A. However, the 2014-A pool contains 8.5% loans with a FICO score less than 650, which were excluded from 2012-A.The 2014-A pool also has 19 months of seasoning and an upgrade concentration of 53%, the highest to date.
Improved Performance: OLCC delinquency and default performance exhibited material increases during the most recent recession. However, notable improvement can be seen in the 2010-2012 vintages. In deriving its cumulative gross default (CGD) proxy of 15.75%, Fitch focused on extrapolations of the 2005-2011 vintages.
Sufficient CE Structure: Initial hard credit enhancement (CE) is expected to be 26.70% and 11.30% for the class A and B notes, respectively. 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 2014-A, remains heavily concentrated in their 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.
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.
Fitch's analysis found that the notes display some sensitivity to increased defaults and prepayments. Under Fitch's moderate (1.5x base case default and prepayment) stresses, the class A notes could experience a downgrade of one to two notches, while the rating on the class B notes would not be expected to be impacted. Under Fitch's severe (2.0x base case default and prepayment) stresses, the class A notes could experience a downgrade of one rating category, while the class B notes could experience a downgrade of up to two rating categories.
Key Rating Drivers and Rating Sensitivities are further described in the presale report dated July 30, 2014. Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in 'Orange Lake Timeshare Trust 2014-A - Appendix'. These R&Ws are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated April 17, 2012.
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Applicable Criteria and Related Research:
--'Orange Lake Timeshare Trust 2014-A' dated July 30, 2014;
--'Orange Lake Timeshare Trust 2014-A --Appendix' dated July 30, 2014;
--'Criteria for Rating U.S. Timeshare Loan ABS' dated June 9, 2014;
--'Global Structured Finance Rating Criteria' dated May 20, 2014;
--'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated April 17, 2012.
Applicable Criteria and Related Research:
Orange Lake Timeshare Trust 2014-A (US ABS)
Orange Lake Timeshare Trust 2014-A -- Appendix
Criteria for Rating U.S. Timeshare Loan ABS
Global Structured Finance Rating Criteria
Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions