Fitch Rates Sierra Timeshare 2016-3 Receivables Funding LLC

CHICAGO--()--Fitch Ratings has assigned the following ratings to Sierra Timeshare 2016-3 Receivables Funding LLC:

--$260,000,000 class A asset-backed notes 'Asf'; Outlook Stable;

--$65,000,000 class B asset-backed notes 'BBBsf'; Outlook Stable.

KEY RATING DRIVERS

Stable Collateral Quality: Approximately 68.1% of Sierra 2016-3 consists of WVRI-originated loans; the remainder are WRDC loans. Fitch has determined that, on a like-for-like FICO basis, WRDC's receivables perform better than WVRI's. The weighted average (WA) original FICO score of the pool is 722.

Continued Stabilization in Performance: Similar to other timeshare originators, Wyndham Worldwide's delinquency and default performance exhibited notable increases in the 2007-2008 vintages. However, WRDC's performance has improved since 2009, while the WVRI portfolio has just recently demonstrated improved performance within the 2013-2014 vintages. Fitch's cumulative gross default proxy for this pool is 19% (up from 2016-2).

Adequate CE Structure: Initial hard credit enhancement (CE) is expected to be 30.50% and 12.50% for class A and B notes, respectively. Hard CE is slightly lower for the class A notes and unchanged for the class B notes in 2016-3 compared to the previous transaction and is comprised of overcollateralization, a letter-of-credit reserve account and subordination. Soft CE is also provided by excess spread and is 10.46% per annum.

Quality of Origination/Servicing: Wyndham Worldwide has demonstrated sufficient abilities as an originator and servicer of timeshare loans. This is evidenced by the historical delinquency and loss performance of securitized trusts and of the managed portfolio.

Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of Wyndham Worldwide and Wyndham Consumer Finance, Inc. (WCF) 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 provided with due diligence information from Deloitte & Touche 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 250 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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1013361

ABS Due Diligence Form 15E 1

https://www.fitchratings.com/creditdesk/press_releases/content/ridf15E_frame.cfm?pr_id=1013361&flm_nm=15e_1013361_1.pdf

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1013361

Endorsement Policy

https://www.fitchratings.com/regulatory

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Fitch Ratings
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Brian Coffey, +1-212-908-0399
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Andrew Tinari, +1-312-368-3127
Associate Director
or
Committee Chairperson
Kevin Corrigan, +1-212-908-9156
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Brian Coffey, +1-212-908-0399
Associate Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Andrew Tinari, +1-312-368-3127
Associate Director
or
Committee Chairperson
Kevin Corrigan, +1-212-908-9156
Senior Director
or
Media Relations
Sandro Scenga, New York, +1-212-908-0278
sandro.scenga@fitchratings.com