Holiday Inn Club Vacations Inc. (HICV) enters the securitization market with a $ 194.2 million transaction that uses another third-party vendor relationship to secure the loans.
BofA Securities is the primary underwriter of the deal, called Accelerated 2021-1HLLC, and offers investors less credit enhancement (CE) and greater borrower risk than its deal last September. After Accelerated Assets 2018-1, LLC, this is AA’s second securitization.
The capital structure includes a $ 74.5 AAA rated tranche; a $ 58.4 million coin rated A; a portion of $ 39.7 million rated BBB; and a BB rated coin, $ 21.6. The tranches respectively carry CEs of 66.5%, 39.4%, 21.0% and 11.0%, lower than the transaction of last September bearing respectively CEs of 71.2%, 47.5%, 26 , 4% and 16.6%.
Fitch Ratings indicates that loss coverage is subsequently lower for the Notes but still sufficient to cover the required rating multiples.
A change from the early recovery ratio amortization event to a sequential order trigger event partially mitigates the impact of the decrease in credit enhancement on loss coverage levels in stress scenarios, according to the rating agency.
Another consideration for investors is the lower weighted average FICO score of timeshare borrowers, at 719 in the current deal compared to 735 in that of last fall.
Timeshare occupancy rates declined significantly in 2020 due to the pandemic and then rebounded to pre-pandemic levels in 2021 as demand for tourism and travel returned this year. Fitch notes, however, that rising rates of coronavirus infection could slow or reverse the current recovery.
The rating agency also points out a weaker feature providing the ability to redeem defaulting timeshare loans. Fitch notes that the timeshare trades he valued all carry the option and none suffered losses. However, 2021-1H is structured to allow the sponsor to redeem the defaulting timeshare loans at 10% of the defaulted loan balance.
Therefore, according to Fitch, unlike other timeshare ABS transactions to date, 2021-1H will experience net losses before reaching its 35% redemption cap. Also, says Fitch, he does not give credit to redemptions because they are considered optional and not mandatory. Thus, Fitch’s analysis focuses on gross defaults and does not take buybacks into account.
The timeshare loans in the securitized pool were initiated by HICV and Wilson Resort Finance, an indirect wholly owned subsidiary of HICV, which will manage the transaction.