Fitch Rates Orange Lake Timeshare Trust 2015-A
--$92,356,000 class A asset-backed notes 'Asf'; Outlook Stable;
--$48,321,000 class B asset-backed notes 'BBBsf'; Outlook Stable.
KEY RATING DRIVERS
Declining Borrower Credit Quality: The WA FICO score of OLTT 2015-A is 717, a notable decline from 733 in 2014-A. In addition, OLTT 2015-A contains 47.6% upgraded loans, down from 2014-A (53.0%), but higher than 2012-A (33.5%). Due to the decreased credit quality of the 2015-A collateral pool, Fitch expects the transaction to experience higher cumulative gross defaults (CGD) than 2014-A.
Improved Performance: OLCC delinquency and default performance exhibited material increases during the most recent recession. However, notable improvement can be seen in the 2010-2012 vintages, while 2013 is tracking slightly higher than 2012. In deriving its cumulative gross default (CGD) proxy of 19.70%, Fitch focused on extrapolations of the 2005-2011 vintages.
Sufficient CE Structure: Initial hard credit enhancement (CE) has increased relative to the prior transactions and is 43.25% and 12.25% for the class A and B notes, respectively. CE is composed of overcollateralization (OC), a reserve account, subordination, and excess spread.
Quality of Origination/Servicing: OLCC has demonstrated sufficient abilities as an originator and servicer of timeshare loans. While the resort footprint has grown in recent years, OLCC's managed portfolio, as well as 2015-A, remains heavily concentrated in their primary Orlando, FL resort.
Legal Structure Integrity: The legal structure of the transaction should provide that a bankruptcy of OLCC and WRF would not impair the timeliness of payments on the securities.
RATING SENSITIVITIES
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 Grant Thornton 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 100 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 'Orange Lake Timeshare Trust 2015-A -- 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.
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