Fitch Expects to Rate Hilton Grand Vacations Trust 2024-1B; Presale Issued

Fitch Ratings has assigned expected ratings and Rating Outlooks to notes to be issued by Hilton Grand Vacations Trust 2024-1B (HGVT 2024-1B).

RATING ACTIONS

Entity / Debt

Rating

Hilton Grand Vacations Trust 2024-1B

A

LT

AAA(EXP)sf

Expected Rating

B

LT

A(EXP)sf

Expected Rating

C

LT

BBB(EXP)sf

Expected Rating

D

LT

BB-(EXP)sf

Expected Rating

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VIEW ADDITIONAL RATING DETAILS

Transaction Summary

The notes are backed by a pool of fixed-rate timeshare loans originated by Bluegreen Vacations Corporation (Bluegreen), which is a wholly owned subsidiary of Hilton Grand Vacations Inc. (HGV) This is HGV's 10th term securitization and the first to include timeshare loans originated by Bluegreen following HGV's acquisition of Bluegreen on Jan. 17, 2024. HGV is currently in the process of integrating Bluegreen and its business and operations, although Bluegreen and its properties will continue to operate as a separate business for the foreseeable future pending such integration.

KEY RATING DRIVERS

Borrower Risk - Stronger Collateral: The HGVT 2024-1B pool has a weighted average (WA) Fair Isaac Corp. (FICO) score of 741, up from 735 in BXG Receivables Note Trust (BXG) 2023-A. The upgrade loans from existing owners have increased to 70.7%, from 60.5% in BXG 2023-A and 52.0% in BXG 2022-A. This is considered a credit positive as these upgrade loans have shown better default performance relative to the non-upgrade loans originated to the new borrowers. Additionally, the pool does not have loans made to foreign obligors, consistent with BXG 2023-A. The WA original term of 120 months and seasoning of nine months are generally in line with BXG 2023-A.

Forward-Looking Approach on CGD Proxy - Weakening Performance: The Bluegreen managed portfolio performance showed notable increases in cumulative gross defaults (CGDs) in the recent 2015-2022 vintages, which are outpacing those of the 2009-2014 vintages. Similarly, recent ABS transactions (since BXG 2015-A) are performing weaker than earlier transactions (issued since 2010). Fitch's base case CGD proxy is 22.50% for HGVT 2024-1B.

Payment Structure - Higher Credit Enhancement Structure: Initial hard credit enhancement (CE) is 66.75%, 44.75%, 27.50% and 14.50% for class A, B, C and D notes, respectively. CE is higher for class A, B and C notes relative to BXG 2023-A. Hard CE comprises overcollateralization (OC), a reserve account and subordination. Soft CE is also provided by excess spread and is expected to be 6.3% per annum. Available CE is sufficient to support stressed 'AAAsf', 'Asf', 'BBBsf' and 'BB-sf' multiples of Fitch's CGD proxy of 22.50%.

Similar to the BXG 2023-A transaction, HGVT 2024-1B has a prefunding account that is expected to hold roughly 5.2% of the aggregated collateral balance to buy eligible subsequent timeshare loans that conform to specified requirements.

Originator/Seller/Servicer Operational Review - Adequate Origination/Servicing: Bluegreen has demonstrated sufficient abilities as an originator and servicer of timeshare loans, as evidenced by the historical delinquency and loss performance of the managed portfolio and prior securitizations.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Unanticipated increases in the frequency of defaults could produce CGD levels that are higher than the base case and would likely result in declines of CE and remaining default coverage available to the notes. Additionally, unanticipated increases in prepayment activity could also result in a decline in coverage. Decreased default coverage may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in coverage.

Therefore, Fitch conducts sensitivity analysis by stressing both a transaction's initial base case CGD and prepayment assumptions and examining the rating implications on all classes of issued notes. The CGD sensitivity stresses the CGD proxy to the level necessary to reduce each rating by one full category, to non-investment grade (BBsf) and to 'CCCsf' based on the break-even loss coverage provided by the CE structure. The prepayment sensitivity includes 1.5x and 2.0x increases to prepayment assumptions, representing moderate and severe stresses, respectively. These analyses are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.

Additionally, Fitch conducts increases of 1.5x and 2.0x to the CGD proxy, which represents moderate and severe stresses, respectively. These analyses are intended to provide an indication of the rating sensitivity of notes to unexpected deterioration of a trust's performance.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Conversely, stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and consideration for potential upgrades. If the CGD is 20% less than the projected proxy, the expected ratings would be maintained for class A notes at a stronger rating multiple. For class B, C and D notes the multiples would increase, resulting in potential upgrades of one rating category, two notches and four notches, respectively.

USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10

Fitch was provided with due diligence information from Ernst & Young LLP. The due diligence information was provided on Form ABS Due Diligence-15E and focused on a comparison and recalculation of certain characteristics with respect to 150 sample loans. Fitch considered this information in its analysis, and the findings did not have an impact on its analysis.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS

A description of the transaction's representations, warranties and enforcement mechanisms (RW&Es) that are disclosed in the offering document and which relate to the underlying asset pool is available by clicking the link to the Appendix. The appendix also contains a comparison of these RW&Es to those Fitch considers typical for the asset class as detailed in the Special Report titled 'Representations, Warranties and Enforcement Mechanisms in Global Structured Finance Transactions'.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com