Timeshare Loan Performance Stable

Standard & Poor’s announced Tuesday the launch of U.S. Timeshare Securitization Performance Index, a quarterly report highlighting performance of timeshare term issuance it has rated since 2001 through the first quarter 2006.

In analyzing underlying loans, S&P found “overall performance of securitized timeshare loans covered by the index is relatively stable.”

The agency rated 17 transactions during the period covered, with one paying out. The remaining 16 transaction as of Mar. 31 was about $1.9 billion, backed by nearly $2.4 billion in timeshare loan receivables, according to the report. Cendant Timeshare Resort Group Inc. has issued the largest volume — 43% — of these transactions.

Average first quarter 2006 delinquency was 3.7%, dropping 30 basis points from 2005, according to the report. Excess spread rates were fairly robust “in the high 7% area.”

Delinquencies generally increase from October through February and decrease between March and September — peak travel months when borrowers may be avoiding past due payments that bar them from using the property, the report said.

Servicers have maintained “fairly successful” collections on delinquent loans, with defaults historically under 80 BPS per month, the agency reported. And loans that do default were either repurchased or substituted out of the trust by the sellers.

Meanwhile, the level of prepayments was 125 BPS during this past March, above the weighted average monthly prepayment rate average of 93 bps since March 2001, according to the report.

It “will be interesting to see if these rates drop over time, as developers have begun to adopt a ‘risk-based pricing’ approach to the loans by offering lower rates to obligors with better credit histories,” S&P said.

The composition of collateral has changed due to the evolution and increased demand for timeshares, the report also noted. Evidence of growing popularity includes higher average loan sizes — from an average of about $8,000 to over $20,000 — and the frequency of precompletion loans, those securing uncompleted timeshare units that are not ready for occupancy, going from virtually nonexistent five years ago to making up possibly over 15% of an overall collateral pool today, the report said.

Before yearend, the ratings agency expects to rate more than $1 billion in new issuance.

“We expect to see continued demand for securitization in the timeshare sector, particularly from large developers that require liquidity and cost-effective funding sources,” S&P said in the report. “Additionally, demand for vacation ownership interests is expected to grow as the industry continues to evolve and reinvent itself, offering various flexible vacation ownership options to a myriad of obligors.”