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By clicking “I AGREE” [at the end of this document], you indicate that you understand and intend these terms and conditions to be the legal equivalent of a signed, written contract and equally binding, and that you accept such terms and conditions as a condition of viewing any and all Moody’s inform​ation that becomes accessible to you [after clicking “I AGREE”] (the “Information”).   References herein to “Moody’s” include Moody’s Corporation, Inc. and each of its subsidiaries and affiliates.

 

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Rating Action:

Moody's upgrades and confirms eight classes of Wyndham timeshare notes

15 Apr 2011

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
No Related Data.
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