ARDA applauds the recent action by Treasury and the Federal Reserve to revive TALF. However, as a direct result of the economic fallout from the coronavirus, credit markets for asset-backed securities (ABS) have frozen creating a very significant and immediate liquidity crisis for some of our most prominent publicly traded and privately held timeshare companies which threatens the industry’s continued viability. ARDA urged Treasury and the Federal Reserve to continue to reestablish liquidity in the timeshare ABS market in an effort to stabilize asset prices, and shore up the balance sheets of market participants.
March 24, 2020
Via electronic submission – www.regulations.gov
The Honorable Jerome H. Powell
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Ave NW
Washington, DC 20551
The Honorable Steven T. Mnuchin
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
The Honorable John C. Williams
President and Chief Executive Officer
Federal Reserve Bank of New York
33 Liberty Street
New York, NY 10045
RE: American Resort Development Association (“ARDA”) Requests Immediate Support of Timeshare Term Asset-Backed Securities Market
Dear Sirs:
We were very pleased by the Federal Reserve and Treasury’s timely decision to revive the Term Asset Backed Securities Facility (TALF). By reviving this important program, this action sends a clear signal to markets that the Fed and the Treasury understand the gravity of the problem that COVID-19 presents the American economy.
Notwithstanding these actions, we request immediate and extensive support of the timeshare industry’s, asset-backed securities market. The current extreme funding pressures on a wide range of financial institutions and a significant contraction in available liquidity at this time present a systemic risk to the continued viability of the U.S. timeshare industry.
As the COVID-19 pandemic poses a threat to almost all aspects of our daily lives, the travel and hospitality industry, including the timeshare sector, are some of the hardest hit industries thus far. Leisure is an incredibly important segment of any service driven economy like the United States. Timeshare is essentially a real estate based ‘use product’ that provides a lifetime of vacations to customers in the form of a membership in a vacation club or a fractional interest in leisure real estate. The US timeshare industry is comprised of a number of public and private companies that collectively recorded sales of $10.2 billion in 2018. There are currently more than 10 million U.S. households that are timeshare owners. A 2018 independent study of the US industry reported that it provided 540,410 full- and part-time jobs and contributed approximately $80.7 Billion to the US economy through direct and indirect consumer spending associated with timeshare purchases and ownership, and generated more than $10.8 billion in tax revenues in 2017 (the latest available industry economic impact data).
Some of ARDA’s most prominent publicly traded member companies include: Disney Vacation Club, Hilton Grand Vacations, Holiday Inn Club Vacations, Marriott Vacations Worldwide and Wyndham Destinations, and a host of respected independent timeshare companies such as: Bluegreen Vacations, Diamond Resorts, Welk Resorts and Westgate Resorts, to name a few. The significant economic impact of the timeshare industry throughout the country is currently being interrupted and the jobs and tax revenues which it has a history of creating are at significant risk.
Our members view the damage that has already been caused to the hospitality industry as a whole (and will continue to do so without decisive action) as much broader, deeper, and faster moving than the crisis in 2008. As of now, the freezing up of the U.S. capital markets caused by COVID-19 has wrought more damage in a handful of weeks than was seen over several months in 2008.
While the Fed has already announced the formation of TALF 2.0, we suggest additional asset classes be eligible. Given the rapid pace of turmoil relative to the 2008 crisis, we suggest immediate action to provide liquidity to the U.S. timeshare industry, which is an integral component of the hospitality industry. Our detailed recommendations are outlined below and in the White Paper on Emergency Liquidity Assistance Needs attached hereto:
- Expand Eligible Collateral Accepted by the Term Asset-Backed Loan Facility (TALF) to prevent a worsening economic/capital-markets crisis.
New issue and legacy timeshare companies’ asset/mortgage backed securities including conduit and single borrower, which securities are backed by pools of consumer loans secured by real estate and related collateral.
- Adjust terms of TALF 2.0 to recognize conservative underwriting criteria in timeshare loans and market dynamics. We advise extending the maximum TALF loan to a five-year maturity.
It should be noted that timeshare companies’ asset-backed securities have historically low loss rates and often are over-subscribed at issuance.
If rating agencies can’t/won’t rate proposed transaction, a Government agency can give the transaction a shadow rating or guaranty of payment to investors.
ARDA asks that the Federal Reserve and Treasury continue to take decisive steps to reestablish liquidity in the timeshare ABS market to stabilize asset prices and shore up the balance sheets of market participants. Should you have any questions, please reach out to Sam DePoy, SVP Global Public Policy.
Sincerely,
Jason Gamel, President & CEO