Key Takeaways
- U.S. timeshare securitization delinquency and default performance is showing typical seasonal fluctuations, in line with pre-pandemic levels although higher than a year ago.
- We rated eight new issuances totaling $2.0 billion, compared with three new issuances in the first three quarters of 2021.
- We expect the timeshare securitizations we rate to maintain stable performance trends through year-end 2022 and into 2023, aided by continued strength in the leisure travel sector.
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.
Year-to-date 2022, timeshare collateral performance has reverted to pre-pandemic levels and is showing historically seasonal performance patterns with an expected uptick in delinquencies in the latter part of the year. Timeshare operators continue to benefit from pent-up demand for travel even as consumer confidence has declined in recent months. We expect there may be some weakening in borrower performance if consumers continue to be strained by rising costs and the threat of a recession materializes.
Hurricane Season Has Closed
The official Atlantic hurricane season is closed, as November 30 was the final day. There were technically 14 named storms, two of which were major hurricanes (defined as category 3 or higher): Ian and Nicole. Previously, we published a comment on the impact of Ian on timeshare developers in Florida and South Carolina (see "S&P Global Ratings Reviews Timeshare Securitization Exposure To Hurricane Ian-Impacted Areas," published Oct. 7, 2022). We continue to follow the potential impact from these storms on our rated securitizations. While there may be a small increase in delinquencies, we do not expect it to be substantial, and we do not anticipate any rating changes related to these storms due to the transactions' robust structures, which include excess spread, reserve accounts, and performance triggers.
2022 Timeshare Receivables New Issuance Deals
Year to date in 2022, S&P Global Ratings has rated eight new issuances totaling $2.0 billion, compared with three new issuances in the first three quarters of 2021 (see charts 1 and 2). In 2022, we removed the 1.25x stress to our base-case default assumptions, which we had introduced in 2020 to address the uncertainty and risks related to COVID-19. Instead, our analysis considered the timeshare originators' historical static pool performance with a focus on more recent origination vintages (generally 2016–2020). We observed that the later vintages seem to show higher default propensity compared with prior more benign periods.
Chart 1
Chart 2
Tables 1A and 1B show a snapshot of the transactions rated in 2022 year to date. For more information on these eight issuances, see the Related Research section.
Table 1A
| Snapshot: 2022 Timeshare Deals Base-Case And Stressed Default Assumptions | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sierra Timeshare 2022-1 Receivables Funding LLC | Hilton Grand Vacations Trust 2022-1D | BXG Receivables Note Trust 2022-A | MVW 2022-1 LLC | HINNT 2022-A LLC | Sierra Timeshare 2022-2 Receivables Funding LLC | Hilton Grand Vacations Trust 2022-2 | Sierra Timeshare 2022-3 Receivables Funding LLC | |||||||||||
| Servicer/sponsor | Travel + Leisure | Diamond(i) | Bluegreen | Marriott Vacations Worldwide | Holiday Inn | Travel + Leisure | Hilton | Travel + Leisure | ||||||||||
| Scenario base-case % assumption | 23.50 | 21.10 | 25.60 | 15.90 | 31.50 | 24.70 | 15.10 | 25.10 | ||||||||||
| Stressed default assumptions (%) | ||||||||||||||||||
| Class A ('AAA (sf)') | 69.50 | 71.60 | 76.10 | 53.50 | 83.50 | 71.30 | 51.60 | 71.60 | ||||||||||
| Class B ('A (sf)') | 53.70 | 38.00 | 66.90 | 54.60 | 35.50 | 54.80 | ||||||||||||
| Class B ('A- (sf)') | 46.80 | 53.80 | ||||||||||||||||
| Class C ('BBB (sf)') | 39.80 | 39.40 | 31.40 | 52.00 | 40.90 | 28.60 | 41.30 | |||||||||||
| Class D ('BB (sf)') | 32.80 | |||||||||||||||||
| Class D ('BB- (sf)') | 28.70 | 24.30 | 32.00 | 22.60 | 32.60 | |||||||||||||
| (i)Hilton completed its acquisition of Diamond Resorts Corp in August 2021. | ||||||||||||||||||
Table 1B
| Snapshot: 2022 Timeshare Deals Advance Rate And Coupons | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sierra Timeshare 2022-1 Receivables Funding LLC | Hilton Grand Vacations Trust 2022-1D | BXG Receivables Note Trust 2022-A | MVW 2022-1 LLC | HINNT 2022-A LLC | Sierra Timeshare 2022-2 Receivables Funding LLC | Hilton Grand Vacations Trust 2022-2 | Sierra Timeshare 2022-3 Receivables Funding LLC | |||||||||||
| Advance rate (%) | ||||||||||||||||||
| 'AAA' | 31.50 | 40.90 | 36.50 | 57.50 | 24.50 | 36.40 | 54.80 | 33.90 | ||||||||||
| 'A' | 60.30 | 77.80 | 47.00 | 58.00 | 80.90 | 56.00 | ||||||||||||
| 'A-' | 73.30 | 65.50 | ||||||||||||||||
| 'BBB' | 83.50 | 81.90 | 90.30 | 65.80 | 80.80 | 90.10 | 78.30 | |||||||||||
| 'BB' | 98.00 | |||||||||||||||||
| 'BB-' | 94.70 | 98.00 | 90.50 | 96.30 | 87.50 | |||||||||||||
| Coupon (%) | ||||||||||||||||||
| Class A ('AAA (sf)') | 3.05 | 3.61 | 4.12 | 4.15 | 4.25 | 4.73 | 4.30 | 5.83 | ||||||||||
| Class B ('A (sf)') | 3.55 | 4.40 | 4.65 | 5.04 | 4.74 | 6.32 | ||||||||||||
| Class B ('A- (sf)') | 4.10 | 4.61 | ||||||||||||||||
| Class C ('BBB (sf)') | 3.94 | 4.69 | 5.23 | 5.58 | 6.36 | 5.57 | 7.63 | |||||||||||
| Class C (NR) | 5.35 | |||||||||||||||||
| Class D ('BB (sf)') | 6.00 | |||||||||||||||||
| Class D ('BB- (sf)') | 6.79 | 7.35 | 9.22 | 8.73 | 10.52 | |||||||||||||
| Class D (NR) | 6.50 | |||||||||||||||||
| Class E (NR) | 8.00 | |||||||||||||||||
| NR--Not rated. | ||||||||||||||||||
2022 Timeshare Deals Performance Update
In the first quarter of 2022, annual reviews were completed for all outstanding S&P Global Ratings-rated timeshare transactions issued prior to 2022. In an annual review, S&P Global Ratings reviews current credit ratings against the latest issuer/issue performance data, along with a review of all five pillars of our rating analysis (credit, cash flows, operational risk, counterparty risk, and legal risk),as well as any recent market and macroeconomic 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 rating actions due to performance deterioration or pandemic stress to date in this sector.
Delinquencies showing a seasonal uptick
Thirty-day, 60-day, and 90-day delinquencies and pandemic-related deferrals spiked at the height of the pandemic (around May-June 2020), before slowly trending down to a historical low in July 2021. Since that point, there has been a reversion in delinquencies to pre-pandemic levels. Delinquencies historically show a seasonal pattern, with increases during the fall and winter followed by decreases in the spring and summer. In September 2022, total delinquencies were at 3.90%, compared to 3.03% in September 2021. The weighted average 30- and 60-day delinquency rates for September 2022 are higher than pre-pandemic levels in August 2019, but 90-day delinquency rates are lower.
Chart 3
Chart 4
Defaults are low on a historical basis
Defaults in the sector remain low. Weighted average monthly defaults were 0.61% in September 2022, compared to 0.55% in September 2021 and 0.75% in September 2020. September 2022's default level is in line to slightly below historical average defaults. Developers continue to repurchase or substitute the majority of defaulted loans within the timeshare transactions.
Chart 5
Sector Outlook: Stable Performance To Continue Into 2023
Many timeshare operators continue to experience strong demand as we approach year-end 2022, as evidenced by elevated upgrade activity and increasing new buyer interest. Occupancy remains high, supported by the investment that buyers make in this product versus alternative vacation options such as hotels. In many respects, it is like these buyers have prepaid their vacations. In addition, timeshare operators are benefitting from elevated rates at hotels that exceed pre-pandemic levels, thereby reinforcing the value proposition of the timeshare product. We expect the timeshare securitizations we rate to maintain stable performance trends through year-end 2022 and into 2023, aided by continued strength in the leisure travel sector.
Our economists expect a shallow recession in 2023 coupled with continued strong inflation, notwithstanding hitting peak inflation in third-quarter 2022. "Our expectations for a recession (broad-based, sharp reduction in economic activity, as defined by the National Bureau of Economic Research) over the next 12 months reflects continued supply disruptions and a larger spike in prices. As a result, the Fed could continue to hike interest rates into mid-2023, damaging household purchasing power," according to our report, "Economic Outlook U.S. Q1 2023: Tipping Toward Recession," published Nov. 28, 2022). Unemployment is expected to peak at 5.6% in fourth-quarter 2023, then descend to 4.7% by fourth-quarter 2025.
Increased unemployment would likely result in an increase in defaults among timeshare borrowers, especially for lower FICO borrowers given the strong relationship between unemployment and timeshare defaults (see "COVID-19 Containment Measures Put U.S. Timeshare Loan Payments To The Test," published April 2, 2020).
While our methodology does not rely on the repurchase or substitution of defaulted assets, we do believe that timeshare originators will likely have sufficient liquidity to continue doing so. In addition, transactions should continue to perform in line with our rating expectations even if defaults and delinquencies were to reach our stressed default assumptions; therefore, we expect transaction rating performance to remain relatively stable.
Related Research
- Economic Outlook U.S. Q4 2022: Teeter Totter, Sept.26, 2022
- Research Update: Marriott Vacations Worldwide Corp. Upgraded To 'BB-' On Continued Sales And EBITDA Recovery; Outlook Positive, Feb. 28, 2022
- 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
- COVID-19 Containment Measures Put U.S. Timeshare Loan Payments To The Test, April 2, 2020
Presales related to recent issuances
- Presale: Sierra Timeshare 2022-1 Receivables Funding LLC, March 11, 2022
- Presale: Hilton Grand Vacations Trust 2022-1D, April 7, 2022
- Presale: BXG Receivables Note Trust 2022-A, April 18, 2022
- Presale: MVW 2022-1, May 5, 2022
- Presale: HINNT 2022-A LLC, May 20, 2022
- Presale: Sierra Timeshare 2022-2 Receivables Funding LLC, July 7, 2022
- Presale: Hilton Grand Vacations Trust 2022-2, July 29, 2022
- Presale: Sierra Timeshare 2022-3 Receivables Funding LLC, Oct. 6, 2022
This report does not constitute a rating action.
| Analytical Contacts: | Nichol M Merritt, Lansing + 1 (312) 233-7100; nichol.merritt@spglobal.com |
| Annika Sandback, New York +1 (212) 438-0621; annika.sandback@spglobal.com | |
| Deborah L Newman, New York + 1 (212) 438 4451; deborah.newman@spglobal.com | |
| Jay Srivats, New York + (347) 266-5103; jay.srivats@spglobal.com | |
| Secondary Contact: | Deegant R Pandya, New York + 1 (212) 438 1289; deegant.pandya@spglobal.com |
No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.
Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.
To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.
S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.
S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.