A securitization of timeshare loans originated by Marriott Ownership Resorts Inc. (MORI) is approaching the market, providing investors with an improved collateral pool but significantly lower credit enhancement (CE) as pandemic effects lessen.
The $425 million Marriott Vacations Worldwide (MVW) 2021-2 transaction is split into three tranches, with a $264.5 million tranche rated AAA, a $95.4 million tranche rated single-A, an $65.1 million tranche rated BBB, according to Fitch Ratings in a Nov. 2 pre-sale report.
In May, the sponsor completed a $425 million securitization that offered a smaller AAA tranche of $207 million, somewhat larger single-A and BBB portions, and a $31 million, BB-rated subordinated portion. All the notes priced significantly below guidance, with the AAA portion pricing at swaps plus 65 basis points, the single-A at swaps plus 95 basis points, the BBB at swaps plus 145 basis points, and the subordinated piece at swaps plus 270 basis points, according to Finsight.
The earlier deal was led by Bank of America as structuring lead and Credit Suisse and Wells Fargo Securities as joint leads, with the latter taking the top role in the current deal.
Fitch highlights that the current deal does not include a subordinated class D note, which is consistent with deals before the pandemic. The CE of the current deal’s AAA, single-A and BBB tranches is lower than the offering earlier this year, at 39.50%, 17.25% and 2.50%, respectively, compared to 52.80%, 28.15% and 9.70% in the earlier transaction.
The CE is “notably” lower for class A, B and C notes relative to the offering earlier this year, Fitch says, adding that available CE is sufficient to support stressed 'AAAsf', 'Asf' and ‘BBBsf' multiples of Fitch's base-case CGD proxy of 15.00%.
Countering lower CE is a stronger pool of loans. Fitch says the collateral in the current deal is more in line with the securitization MVW closed in July 2020 than the deal earlier this year, with their weighted average FICO scores respectively 733 from 735, compared to 719 for the deal that closed in May.
The Fitch report says tourism and travel were affected significantly by the pandemic, but demand as measured by occupancy rates has returned to pre-pandemic levels across most timeshare networks. The rating agency notes that a setback in travel due to increasing coronavirus infection rates could slow or reverse the current recovery.
