- Despite strain in the U.S. travel and lodging sector, timeshare securitization performance has remained stable.
- There have been sizable consolidations among timeshare developers following the pandemic.
- Five timeshare securitizations, totaling approximately $1.8 billion dollars, were rated by S&P Global Ratings year-to-date in 2021.
- Though deferrals and delinquencies have leveled off since their peak in summer/fall of 2020, Sept. 2021 delinquency is 10 bps higher than the Aug. 2021 levels.
- Bookings are healthy and occupancy is on the rise, near pre-pandemic levels.
- Developers continue to retain sufficient liquidity to support the repurchase of defaulted loans.
A timeshare, or a vacation ownership interest (VOI), loan is typically an installment sale or mortgage loan with an original term generally ranging from seven to 10 years and is secured by a right-to-use the property or by a deeded interest, as applicable. Historically, timeshares were sold on a fixed-week, fixed-unit basis, which gives the timeshare owner the right to use a designated unit in a specified property for a defined time period each year in perpetuity. Since the early 1990s, some VOIs have been sold through a points program, whereby purchasers buy points in a system that entitles them to use any of the properties within a developer's system at any time during the year, subject to availability.
Despite strain in the U.S. travel and lodging sector due to the COVID-19 pandemic, timeshare securitization performance has remained stable in 2021, and there have been no rating actions year to date. Despite consolidation in the sector, new issuance has increased compared with that in 2020, but remains significantly lower than in 2019.
Following the onset of the pandemic, there have been sizable consolidations in this industry. Early in 2021, two of the largest timeshare developers acquired other timeshare systems. Marriott Vacations Worldwide Corp. acquired Welk Resorts, and Hilton Grand Vacations acquired Diamond Resorts International Ltd.
Chart 1 shows a breakdown of all outstanding deals' bond balance per servicer/sponsor.
2021 Timeshare Receivables New Issuance Deals
To reflect the uncertain and weakened U.S. economic and sector outlook, early in 2020, we increased our base-case default assumption by 1.25x to stress defaults to 'BB' from 'B' rating scenarios. S&P Global Ratings rated five new issuances year to date in 2021 totaling $1.8 billion compared with five in 2020 (see charts 2 and 3).
Table 1 shows a snapshot of the transactions we rated in 2021.
|Snapshot: 2021 Timeshare Deals|
|Elara HGV Timeshare Issuer 2021-A||MVW 2021-2 LLC||Sierra Timeshare 2021-2 Receivables Funding LLC||Diamond Resorts Owner Trust 2021-1||Sierra Timeshare 2021-1 Receivables Funding LLC|
|Servicer/sponsor||Hilton Grand Vacations Inc.||Marriott Ownership Resorts Inc.||Travel + Leisure (Wyndham)||Hilton Grand Vacations Inc.||Travel + Leisure (Wyndham)|
|'BB' scenario base-case % assumption (1.25x)||18.9||18.5||23.7||25.1||24.9|
|Advance rate (%)|
|Class A ('AAA (sf)')||48.6||47.7||35.3||39.4||34.2|
|Class B ('A (sf)')||74.2||72.4||64.0||64.0||61.8|
|Class C ('BBB (sf)')||88.1||90.8||88.2||35.7||86.9|
|Class D ('BB (sf)')||97.2||98.0||98.0||94.0||98.0|
|Aggregate loan balance ($)||148,461,909||318,623,959||401,778,477||254,633,365||525,420,595|
|Number of loans||6,979||12,391||17,971||9,305||22,416|
|WA original Ttrm||120||144||120||120||120|
|WA remaining term||98||134||109||106||109|
|Stressed default assumption (%)|
|Class A ('AAA (sf)')||64.4||57.9||70.0||75.2||76.4|
|Class B ('A (sf)')||43.2||42.2||53.6||57.6||58.1|
|Class C ('BBB (sf)')||36.6||35.7||40.2||43.3||43.8|
|Class D ('BB (sf)')||29.0||28.1||33.1||34.7||35.0|
For more information on these five issuances, see:
- Presale: Sierra Timeshare 2021-2 Receivables Funding LLC, Oct. 14, 2021;
- Presale: Elara HGV Timeshare Issuer 2021-A, Oct. 8, 2021;
- Presale: MVW 2021-1W LLC, May 5, 2021;
- Presale: Diamond Resorts Owner Trust 2021-1, April 7, 2021; and
- Presale: Sierra Timeshare 2021-1 Receivables Funding LLC, March 3, 2021.
2021 Timeshare Deals Performance Update
In the first quarter of 2021, annual reviews were completed for all outstanding S&P Global Ratings-rated timeshare transactions. In an annual review, S&P Global Ratings reviews current credit ratings against the latest issuer/issue performance data, as well as any recent market developments. Our credit ratings on timeshare transactions reflect our opinion of the credit enhancement available in the form of subordination, overcollateralization, a reserve account, and available excess spread.
There have been no ratings actions to date in this sector on account of performance deterioration or pandemic stress.
Allowed deferrals and modifications in transactions
Most timeshare transactions include provisions for force majeure loans, which allow the servicer to modify, waive, amend, or defer the terms of a timeshare loan where the obligor's ability to make payments is impacted by certain events beyond their control. A force majeure event is defined as a natural disaster, act of war or terrorism, epidemic or pandemic (including COVID-19), or other circumstance beyond the reasonable control of the servicer. Transactions typically allow for modification of up to a maximum of 5.0% of the aggregate closing date collateral balance, in connection with a force majeure deferral (force majeure loan).
Many developers have created some form of a non-force majeure deferral bucket to accommodate for additional deferrals and modifications on account of the pandemic. Typically, these buckets have been sized to a maximum cap of around 5%.
Delinquencies trending down
Although delinquencies and pandemic-related deferrals spiked at the height of the pandemic, they are now near pre-pandemic levels. Total delinquencies for U.S. timeshare transactions have stabilized to below pre-pandemic levels, with total delinquencies trending down at 3.03% in Sept. 2021, compared to peak pandemic levels of 5.1% in May 2020. The weighted average delinquency for Sept. 2019 was 4.02%. Prior to the pandemic, the average delinquency rate was approximately 3.9% from Feb. 2015 to Feb. 2020. The weighted average 30-day delinquency rate for Sept. 2021 is 1.23%, 60-day is 0.77%, and 90-day is 1.01%.
Defaults are low
Defaults in the sector have been low. Developers continue to have sufficient capacity and willingness to repurchase or substitute defaulted loans within the timeshare transactions. The cumulative default for Sept. 2021 was 17.44% while the monthly default dropped to 0.55%
Occupancy is nearly at pre-pandemic levels
With the ramp up in vaccine production and rollouts gathering pace around the world, the confidence to travel domestically has increased. In the second and third quarters of 2020, the timeshare sector experienced a spike in requests for deferrals and increased delinquencies due to the impact of COVID-19 containment measures. Since then, we have observed a significant slowdown in this trend, primarily because of the pickup in bookings and occupancy at drive-to destinations, as well as the ability to "bank" points to satisfy future pent-up demand for vacations. Bookings and occupancy at timeshare resorts are nearly at pre-pandemic levels, supporting a strong recovery of the sector.
Sector Outlook: Stable Performance To Continue Into 2022
The outlook for the timeshare developers in the near-to-medium term is stable to positive, reflecting the potential of credit metrics being restored in the next few quarters (see Related Research section for more information). We expect the stable performance trends of the rated securitizations to continue well into 2022, supported by ongoing leisure travel recovery, which was robust during the summer of 2021 due to pent-up demand. Bookings and occupancy are at pre-pandemic levels at most of the resorts and expected to support the strong recovery as well. Increased occupancy would potentially lead to higher sales tours and conversions. Going forward, we believe originators will have available timeshare loans for substitutions and sufficient liquidity to repurchase defaulted assets and transaction performance is expected to continue to be stable.
- Research Update: Travel + Leisure Co. Outlook Revised To Stable On Travel Rebound And Improving Revenue Forecast; Ratings Affirmed, Oct. 29, 2021
- Research Update: Marriott Vacations Worldwide Corp. Outlook Revised To Positive; Senior Unsecured Debt Placed On Watch Positive, Sept. 14, 2021
- Research Update: Hilton Grand Vacations Inc. Lowered To 'B+' After Diamond Acquisition Completion; Outlook Stable, Aug. 10, 2021
The authors would like to thank Bushra Dawawala for her research contributions to this report.
This report does not constitute a rating action.
|Analytical Contacts:||Jay Srivats, San Francisco + (347) 266-5103;|
|Deborah L Newman, New York + 1 (212) 438 4451;|
|Ildiko Szilank, New York + 1 (212) 438 2614;|
|Secondary Contact:||Deegant R Pandya, New York + 1 (212) 438 1289;|
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