Approximately $369 million of asset-backed securities affected
New York, April 15, 2011 -- Moody's Investors Service upgraded six classes of notes and confirmed
two classes of notes from four Sierra timeshare deals sponsored by Wyndham
Worldwide Corporation (Wyndham). The underlying collateral consists
of timeshare loan receivables issued and serviced by subsidiaries of Wyndham.
RATINGS RATIONALE
The upgrades of the notes issued by Sierra Timeshare 2006-1,
2007-1, 2008-1 were prompted by a build-up
in credit enhancement in each of the deals. The three trusts have
reached overcollateralization targets ranging from 20-45%
of outstanding pool balance (with a floor of 0.5% of original
pool balance). In addition, the non-declining reserves
for Sierra 2006-1 and 2007-1 are 3.2% and
2.0% of the outstanding pool balances respectively (each
reserve being at its floor of 0.5% of original pool balance).
Although delinquencies and periodic gross charge-offs remain escalated
compared with pre-2008 levels, these deals' credit enhancement
levels relative to remaining expected losses improved significantly since
the last rating action. Ratings of class A-1 and A-2
form Sierra 2007-2 were confirmed. Although this deal also
benefited from a build-up in credit enhancement, the build-up
was offset by an increase in projected remaining charge-offs and
therefore net losses to the underlying pool.
The performance evaluation of the deals was based on the adequacy of the
available credit enhancement for each class of notes relative to Moody's
expected loss on the remaining pool and assumed loss volatility.
Moody's considered the following sources of credit enhancement:
overcollateralization, reserve fund, subordination,
excess spread, as well as the protection provided by structural
features of the transactions.
Moody's analysis primarily focuses on the ratio of credit enhancement
to expected gross charge-offs on the remaining pool.
Several approaches were utilized to quantitatively assess the lifetime
gross charge-offs, from which remaining expected charge-offs
are derived for timeshare deals. The primary method for assessing
lifetime charge-offs is based on the level and shape of the cumulative
gross charge-off curves and cumulative gross charge-off
to liquidation curves, with additional consideration given to the
current economic environment and the nature of the asset class.
The level where the two curves converge will be the lifetime gross charge-offs
of the pool. In cases where the gross charge-off to liquidation
curve is still above the cumulative charge-off curve, or
where the expected convergence point of the curves is not clear,
a cash flow approach is utilized. The cash flow approach measures
monthly charge-offs, scheduled amortization, and prepayments,
and assumes that the observed elevated average charge-off rate
for the last 12 months and the low prepayment rate of the last 6 months
will start decreasing in a course of 12 months to a stabilized level.
The charge-off and prepayment rates are then assumed to stabilize,
over a period of 12 months, to a level consistent with historical
data, and to remain at this level for the remaining life of the
pool. A third metric employed to triangulate estimated lifetime
charge-offs was a regression based on the pool factor in each period
to the cumulative charge-off for the corresponding period.
In addition, in order to address tail-end risk, Moody's
considered the possibility of continued elevated charge-off rates
for the pools. Although displaying a positive (downward) trend
in recent periods, gross charge-off to liquidation rates
are still relatively high. Although a base case may typically assume
the positive trend continues, Moody's assumed that monthly
gross charge-off to liquidation rates would remain at their levels
from the most recent reporting period in order to apply a stress commensurate
with the upgrades of the related securities. Further, Sierra
2007-1 and 2007-2 have almost reached their limits for optional
substitution/repurchase of defaulted loans, meaning that future
charge-offs will translate to net losses to the trust, the
magnitude of which will depend on recoveries on the defaulted loans.
If the monthly excess spread is not sufficient to absorb the monthly net
losses, the elevated gross charge-off rate may erode overcollateralization
level and expose the both deals to tail-end risk. Moody's
will continue to monitor the recoveries on defaulted loans and the impact
to the trusts.
In order to arrive at appropriate ratings, the ratio of credit enhancement
to expected remaining net losses is then compared with timeshare transactions
with similar remaining net losses to determine the appropriate ratings.
The ratio to achieve a certain rating may be reduced based on the seasoning
of the underlying pools.
Certain securities, as noted below, are insured by financial
guarantors. For securities insured by a financial guarantor,
the rating on the securities is the higher of (i) the guarantor's financial
strength rating and (ii) the current underlying rating (i.e.,
absent consideration of the guaranty) on the security. The principal
methodology used in determining the underlying rating is the same methodology
for rating securities that do not have a financial guaranty and is as
described earlier.
Our expected lifetime net losses (as a percentage of the original pool
balance plus cumulative loan substitution amount to date) are approximately
13-14%, 17-18%, 18-20%
and 20-22% respectively for the 2006-1, 2007-1,
2007-2 and 2008-1 trusts. The ratings of the Class
A notes in Sierra 2006-1, Sierra 2007-1 and 2007-2,
and the Class B and C notes in Sierra 2008-1, could be upgraded
in the future if the lifetime expected net losses are 10% lower,
or downgraded if the lifetime expected net losses are 10% higher
than the levels indicated above.
The performance expectations for a given variable indicate Moody's forward-looking
view of the likely range of performance over the medium term. From
time to time, Moody's may, if warranted, change these
expectations. Performance that falls outside the given range may
indicate that the collateral's credit quality is stronger or weaker than
Moody's had anticipated when the related securities ratings were issued.
Even so, a deviation from the expected range will not necessarily
result in a rating action nor does performance within expectations preclude
such actions. The decision to take (or not take) a rating action
is dependent on an assessment of a range of factors including, but
not exclusively, the performance metrics. Primary sources
of uncertainty with regard to expected losses are the weak economic environment,
which adversely impacts the income-generating ability of the borrowers.
Overall, Moody's central global scenario remains "Hook-shaped"
for 2010 and 2011; we expect overall a sluggish recovery in most
of the world largest economies, returning to trend growth rate with
elevated fiscal deficits and persistent unemployment levels.
Moody's Investors Service did not receive or take into account a third
party due diligence report on the underlying assets or financial instruments
related to the monitoring of this transaction in the past 6 months.
RATINGS
Issuer: Sierra Timeshare 2006-1 Receivables Funding,
LLC
Cl. A-1, Upgraded to A2 (sf); previously on Nov
10, 2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Cl. A-2, Upgraded to A2 (sf); previously on Nov
10, 2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Financial Guarantor: MBIA Insurance Corporation (B3)
Issuer: Sierra Timeshare 2007-1 Receivables Funding,
LLC
Cl. A-1, Upgraded to A3 (sf); previously on Nov
10, 2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Underlying Rating: Upgraded to A3 (sf); previously on Nov 10,
2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Cl. A-2, Upgraded to A3 (sf); previously on Nov
10, 2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Underlying Rating: Upgraded to A3 (sf); previously on Nov 10,
2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Issuer: Sierra Timeshare 2007-2 Receivables Funding,
LLC
Cl. A-1, Confirmed at Baa3 (sf); previously on
Nov 10, 2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Cl. A-2, Confirmed at Baa3 (sf); previously on
Nov 10, 2010 Baa3 (sf) Placed Under Review for Possible Upgrade
Financial Guarantor: MBIA Insurance Corporation (B3)
Issuer: Sierra Timeshare 2008-1 Receivables Funding,
LLC
Cl. B, Upgraded to Aa1 (sf); previously on Nov 10,
2010 Aa2 (sf) Placed Under Review for Possible Upgrade
Cl. C, Upgraded to Aa3 (sf); previously on Nov 10,
2010 A2 (sf) Placed Under Review for Possible Upgrade
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, confidential and proprietary Moody's
Investors Service information and confidential and proprietary Moody's
Analytics' information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
New York
Amelia (Amy) Tobey
VP - Senior Credit Officer
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
JingJing Dang
Asst Vice President - Analyst
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's upgrades and confirms eight classes of Wyndham timeshare notes
