DBRS Morningstar Assigns Provisional Ratings to Westgate Resorts 2020-1 LLC

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the following classes of notes to be issued by Westgate Resorts 2020-1 LLC (the Issuer):

-- $113,900,000 Timeshare Collateralized Notes, Series 2020-1, Class A rated AAA (sf)
-- $88,600,000 Timeshare Collateralized Notes, Series 2020-1, Class B rated A (sf)
-- $72,500,000 Timeshare Collateralized Notes, Series 2020-1, Class C rated BBB (low) (sf)

The provisional ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) The transaction capital structure and form and sufficiency of available credit enhancement are commensurate with the proposed ratings. Credit enhancement is in the form of overcollateralization, subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative gross loss (CGL) assumption under various stress scenarios.

(2) The transaction assumptions consider DBRS Morningstar’s set of moderate macroeconomic scenario for select economies related to the Coronavirus Disease (COVID-19), available in its commentary “Global Macroeconomic Scenarios: June Update,” published on June 1, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020. The scenarios were updated on June 1, 2020, and are reflected in DBRS Morningstar’s rating analysis.

(3) The assumptions consider the moderate macroeconomic scenario outlined in the commentary (the moderate scenario serving as the primary anchor for current ratings). The moderate scenario assumes some success in containment of the coronavirus within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual economic recovery in Q3 2020. As a result, the expected CGL assumption for this pool includes an upward revision in consideration of the unemployment levels in the moderate scenario as well as additional considerations related to the coronavirus, including the severe disruption of the tourism, hospitality, and travel-related industries.

(4) The transaction assumptions also consider observed performance during the 2008–09 financial crisis and the possible impact of the stimulus package from the Coronavirus Aid, Relief, and Economic Security Act.

(5) The transaction has the ability to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the rating on the Class A Notes will address the timely payment of interest and the ultimate payment of principal on or before the Final Maturity Date. The ratings on the Class B and Class C Notes will address the ultimate payment of interest and the ultimate payment of principal on or before their respective Final Maturity Dates.

(6) Westgate Resorts, Ltd. (Westgate) has sufficient operating history and capabilities with regard to developing and managing timeshare resorts as well as the origination, underwriting, and servicing of timeshare loans.

(7) The credit quality of the collateral reflects the ratings, and Westgate’s timeshare loans portfolio has had consistent performance.

(8) The Westgate senior management team has considerable experience and a successful track record within the timeshare industry.

(9) The legal structure and expected presence of legal opinions will address the true sale of the assets to the Issuer, the nonconsolidation of each of the depositors and the Issuer with Westgate, that the Issuer has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

ESG CONSIDERATIONS:
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in in U.S. dollars unless otherwise noted.

The principal methodology is Rating U.S. Timeshare Loan Securitizations (September 27, 2018), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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