Kroll Bond Rating Agency (KBRA) assigns preliminary ratings to four classes of notes issued by Welk Resorts 2019-A (“WELK 2019-A”). This is a $150.72 million timeshare ABS transaction that is expected to close June 12, 2019.
Welk Resorts 2019-A, LLC will issue four classes of notes rated ‘AAA (sf)’ through ‘BBB- (sf)’, totaling $150.72 million. Welk 2019-A includes a prefunding feature that allows up to $25 million or 16.3% of the collateral pool to be purchased up to 180 days from closing. The notes are collateralized by the vacation ownership interests (“VOIs”) purchased through the timeshare loans. Credit enhancement for the Notes is comprised of 1.50% initial over-collateralization (subject to a 0.50% floor), subordination of junior note classes (52.00% in the case of Class A notes, 28.00% in the case of Class B notes and 5.00% in the case of the Class C notes), a 2.50% general reserve account (which can step down to 1.00% after month 12) and excess spread. The transaction has initial hard credit enhancement levels of 56.00% for the Class A notes through 4.00% for the Class D notes.
The timeshare loans are fixed rate installment loans, generally made to prime borrowers, having an original loan term of 10 or 15 years, with a 5%-15% down payment and paying an average interest rate of 14.9% – 16.9%. The VOI provides the owner annual or biennial rights to use any property in Welk’s system for perpetuity, subject to resort availability and the owner having the appropriate amount of redeemable points.
Welk is a leading international hospitality and vacation ownership interest company with its corporate office in San Marcos, California. The Company was founded by the late Lawrence Welk, the famous bandleader and television celebrity has been in the timeshare business since 1984 and has operated resorts since 1964. Welk has an experienced management team with diverse experience in the hospitality industry.
KBRA applied its U.S. Timeshare ABS methodology as part of its analysis of the transaction’s underlying collateral pool, the proposed capital structure and Welk’s historical static pool data. KBRA also conducted an operational assessment on the originator and servicer, as well as a review of the transaction’s legal structure and transaction documents. KBRA will also review the operative agreements and legal opinions for the transaction prior to closing.
Preliminary Ratings Assigned: Welk Resorts 2019-A
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