Fitch Rates VSE 2016-A VOI Mortgage LLC
--$346,240,000 class A timeshare loan-backed notes 'Asf'; Outlook Stable;
--$28,760,000 class B timeshare loan-backed notes 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Obligor Credit Quality: Consistent with prior Starwood Vacation Ownership (SVO) transactions, the 2016-A pool has a weighted average (WA) Fair Issac Corp. (FICO) score of 720. The pool also includes approximately 19.50% of 15-year original-term loans that have experienced higher cumulative gross defaults (CGD) than 10-year original-term loans.
Strong WA Seasoning: The pool has WA seasoning of 32 months. The pool includes roughly 9.40% called collateral from the SVO 2010-A transaction for which explicit credit was incorporated in Fitch's base case CGD proxy of 11.00%.
Available CE Structure: Initial hard credit enhancement (CE) is expected to be 11.40% and 4.00% for class A and B notes, respectively. Hard CE is composed of overcollateralization (OC), a reserve account, and subordination. CE provided by excess spread is expected to be 9.46% per annum.
Quality of Origination/Servicing: Vistana Portfolio Services, Inc. has demonstrated sufficient abilities as an originator and servicer of timeshare loans. This is evidenced by the historical delinquency and loss performance of the Vistana's managed portfolio and previous transactions.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of Vistana or Vistana Portfolio Services, Inc. would not impair the timeliness of payments on the securities.
Unanticipated increases in the frequency of defaults could produce CGD levels higher than the base case and would likely result in declines in 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 Form ABS Due Diligence-15E (Form 15E) as prepared by Ernest & Young LLP. The third-party due diligence described in Form 15E focused on a comparison and re-computation of certain characteristics with respect to 200 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 May 31, 2016.