Category: ABS
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Timeshare ABS was one of the few asset classes in 2009 that demonstrated strong investor demand and resilient credit performance without the support of the TALF programme. According to a recent report from S&P, issuance of ABS based on timeshares passed the US$1bn mark in 2009, with developers such as Marriot, Wyndham, Diamond Resorts and Starwood issuing new term securitisations. Timeshare ABS issuance in 2008 issuance was just more than US$600m.
The healthy issuance volumes defied the recession and its impact on consumers, who were expected to shy away from timeshares. "The comeback in volume is even more remarkable because it is happening amid declining sales, diminished property values and higher consumer delinquencies for timeshares. Compared with historical levels, the 30% year-over-year decline in timeshare sales in 2009 is the highest since the sector's inception in the 1970s," says the rating agency.
According to S&P, timeshare developers who securitised were able to achieve investor demand by increased credit enhancement and pricing reflective of the current market environment. "Typical US consumers view a timeshare purchase as a discretionary item in their budgets. One could assume that, under financial stress, payments on a timeshare loan might be among the first items to get cut," it says.
The agency continues: "To be sure, timeshare loans have not escaped the deteriorating performance experienced by all consumer credit assets. However, the increase in delinquencies and defaults in the sector since September 2008 has been relatively modest, and we believe preliminary signs indicate that the worst may be over."
Timeshare ABS ratings performance has held up, in part because the deals typically have sufficient credit enhancement, in S&P's opinion, to absorb multiples of the historical default levels. "Perhaps as a result, timeshare ABS investors are demanding new issuance in the face of lower timeshare sales and slowed developments," says the rating agency.
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