Fitch Expects to Rate Sierra Timeshare 2015-3 Receivables Funding LLC
--\\$196,630,000 class A asset-backed notes 'Asf'; Outlook Stable;
--\\$53,370,000 class B asset-backed notes 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Stable Collateral Quality: Approximately 64.9% of Sierra 2015-3 consists of WVRI-originated loans; the remaining 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 719.
Continued Recent 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 WVRI continues to experience high defaults. Nonetheless, the 2013 vintage within the WVRI portfolio demonstrates relative stabilization in default performance. Fitch's CGD Proxy for this pool is 19.15%.
Adequate CE Structure: Initial hard credit enhancement (CE) is expected to be 32.50% and 13.50% for class A and B notes, respectively. Hard CE is composed of overcollateralization (OC), a letter of credit reserve account and subordination. Soft CE is also provided by excess spread and is expected to be 9.95% 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.
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.
DUE DILIGENCE USAGE
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.
Fitch's analysis of the Representations and Warranties (R&W) of this transaction can be found in the reports titled 'Sierra Timeshare 2015-3 Receivables Funding LLC -- Appendix'. These R&W are compared to those of typical R&W for the asset class as detailed in the special report 'Representations, Warranties, and Enforcement Mechanisms in Global Structured Finance Transactions' dated June 12, 2015.