DBRS Morningstar Releases Timeshare Loan ABS Sector Outlook – Negative Due to Coronavirus

DBRS Morningstar released a commentary, “DBRS Morningstar’s Timeshare Loan ABS Sector Outlook—Negative Due To Coronavirus,” which highlights how the ongoing Coronavirus Disease (COVID-19) pandemic has adversely affected the timeshare loan sector.

With the closure of many nonessential businesses across the U.S., jobless claims have exceeded 36 million since mid-March. As a result, DBRS Morningstar expects timeshare portfolios to experience increased delinquencies and losses.

Key highlights in the commentary include:

(1) While more pronounced performance deterioration in higher credit risk portfolios is expected, structural features and protections in typical timeshare loan asset-backed securities (ABS) transactions will likely help mitigate the effect of higher losses. Timeshare companies focusing on higher-credit-quality obligors are likely to experience relatively fewer defaults given the generally higher incomes and stable credit histories of consumers in this segment.
(2) Closed resorts and lingering health concerns may limit timeshare owners' ability and/or desire to use their timeshare properties in the near term, decreasing the likelihood of an already stressed obligor’s willingness to pay.
(3) While the assistance provided by the U.S. Coronavirus Aid, Relief, and Economic Security (CARES) Act is expected to significantly minimize consumer stress on lower-credit-quality borrowers in the near term, the type of short-term relief provided by CARES is not likely to assist consumers during a sustained economic downturn, unless extended.
(4) Increases in consumer defaults may be mitigated by provisions typically found in ABS transactions that provide the timeshare company the option to repurchase or substitute performing receivables for delinquent or defaulted receivables.

Notes:
The commentary is available at www.dbrsmorningstar.com.

For more information on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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