Diamond Resorts Owner Trust 2021-1

Presale: Diamond Resorts Owner Trust 2021-1

April 7, 2021

PRIMARY CREDIT ANALYST

Preliminary Ratings Jay Srivats San Francisco Class Preliminary rating Preliminary amount (mil. $) Subordination and overcollateralization (%) + (347) 266-5103 A AAA (sf) 134.10 60.50 jay.srivats @spglobal.com B A (sf) 83.18 36.00 SECONDARY CONTACTS C BBB (sf) 65.36 16.75 Deborah L Newman D BB (sf) 36.50 6.00 New York + 1 (212) 438 4451 Note: This presale report is based on information as of April 7, 2021. The ratings shown are preliminary. Subsequent information may result in the assignment of final ratings that differ from the preliminary ratings. Accordingly, the preliminary ratings should not be construed as evidence deborah.newman of final ratings. This report does not constitute a recommendation to buy, hold, or sell securities. @spglobal.com

Matthew R Howard Chicago Profile + 1 (312) 233 7035 Matthew.Howard Expected closing date April 2021. @spglobal.com

Collateral Vacation ownership interest (timeshare) loans. ANALYTICAL MANAGER

Arranger Credit Suisse Securities (USA) LLC. Ildiko Szilank New York Seller Diamond Resorts Seller 2021-1 LLC. + 1 (212) 438 2614 Servicer and administrator Diamond Resorts Financial Services Inc. ildiko.szilank @spglobal.com Backup servicer, indenture trustee, and custodian Wells Fargo Bank N.A.

Owner trustee U.S. Bank Trust N.A.

Rationale

The preliminary ratings assigned to Diamond Resorts Owner Trust 2021-1's $319.1 million timeshare loan-backed notes series 2021-1 reflect S&P Global Ratings' opinion of the credit enhancement that is available in the form of subordination, overcollateralization, a reserve account, and available excess spread. The preliminary ratings also reflect our view of Diamond Resorts Financial Services Inc.'s (DFRS) servicing ability and experience in the timeshare market. We are aware that Diamond Resorts International Inc. (DRII), parent of the servicer, has announced that it will be acquired by Hilton Grand Vacations Inc. (HGV) in the coming months. Although there are various operational and integration risks, we believe the acquisition will improve the credit profile of DRII, and as such, our credit rating on the parent is 'CCC+/Watch positive' (see "Research

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© S&P Global Ratings. All rights reserved. No reprint or dissemination without S&P Global Ratings' permission. See Terms of Use/Disclaimer 2623853 on the last page. Presale: Diamond Resorts Owner Trust 2021-1

Update: Diamond Resorts International Inc. Ratings On CreditWatch Positive After Announced Acquisition By Hilton Grand Vacations," published March 11, 2021). Servicing on the timeshare loans by DFRS is expected to be unaffected in the short-to-medium term and be integrated into HGV's servicing over the longer term.

U.S. lodging is one of the hardest-hit sectors with unprecedented declines in revenue due to the containment measures to slow the spread of COVID-19. Within lodging, we believe the performance of timeshare loan securitizations will likely deteriorate due to travel restraints (including the government-mandated closure of resorts), the projected increase in unemployment, the resulting increase in bankruptcy filings, and the potential shift in consumer behavior, including payment priority on various loan obligations. This has put an enormous strain on global economic activity, which S&P Global Ratings expects will continue as long as there are bans and restrictions on travel. For more information, see "COVID-19 Containment Measures Put U.S. Timeshare Loan Payments To The Test," published April 2, 2020.

Given that we are in a recessionary period since the pandemic started in 2020 and to reflect the uncertain and weakened U.S. economic and sector outlook, we increased our base-case default assumption by 1.25x to stress defaults from 'B' to 'BB' rating scenarios. In addition to our base rating stress, to reflect additional liquidity stress from deferrals and potential increase in delinquencies, we also considered incremental liquidity and sensitivity stress in all rating categories (see detailed results of the stressed runs in the Cash Flow Assumptions And Sensitivity Analysis section).

Our preliminary ratings on Diamond Resorts Owner Timeshare Trust 2021-1's timeshare loan-backed notes series 2021-1 reflect that the transaction structure is able to pay timely interest and ultimate principal by legal maturity on all the notes under our stressed cash flow scenarios, as well as the recovery rate, liquidity, and credit stability sensitivity scenarios.

S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

Business Description

Diamond Resorts International Inc. (Diamond) and its subsidiaries operate one of the world's largest vacation ownership interest (VOI) companies. It has a worldwide network of 339 destinations located in 34 countries worldwide, comprising 110 managed resorts, and 229 affiliated resorts, representing approximately 14,198 units and operates points-based vacation clubs.

On March 10, 2021, Hilton Grand Vacations Inc. (HGV) entered into a definitive agreement to acquire Diamond Resorts International Inc., in a stock-based transaction valued at approximately $1.4 billion. Subject to terms of the agreement, HGV will own approximately 72% of the combined company, while Apollo Management Inc. and other Diamond stockholders will maintain ownership of 28% of the combined company. Diamond's corporate credit profile is expected to benefit from the acquisition, as HGV is a higher-rated entity and will likely reduce Diamond's leverage. For more information, see "Research Update: Diamond Resorts International Inc. Ratings On CreditWatch

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Positive After Announced Acquisition By Hilton Grand Vacations," published March 11, 2021. Upon closing of the proposed merger, the issuer, seller, and servicer will become an indirect wholly owned subsidiary of HGV. In our analysis of the 2021-1 term transaction, we assessed Diamond on a stand-alone basis, as the system is expected to operate independently from HGV until the proposed acquisition has completed.

In April 2018, Diamond acquired the Amber Vacation Club, adding two locations in Pigeon Forge, Tenn., and Kissimmee, Fla. This acquisition added 13,500 owners. Diamond also completed the acquisition of The Modern Honolulu, a 350-unit four-star hotel located in the heart of Waikiki in Honolulu on the island of Oahu.

On Sept. 2, 2016, affiliates of certain funds managed by affiliates of Apollo Global Management LLC acquired all of the outstanding common stock of Diamond. Diamond became a privately held company at this time and continues to be a holding company, and its principal asset is the direct and indirect ownership of equity interests in its subsidiaries, including Diamond Resorts Corp.

Before Oct. 1, 2007, Diamond and its affiliates marketed and sold VOIs in the form of both points and deeded intervals. After Oct. 1, 2007, Diamond and its affiliates began marketing and selling VOIs only in the form of points. With deeded intervals, the purchaser typically acquires either a fee-simple interest in a specific VOI unit or an undivided interest in an entire resort that entitles the purchaser to use a VOI unit for a one-week period each year or in alternative years, in perpetuity. With points, the purchaser becomes a member of a points-based VOI system that entitles him/her to use one or more units in one or more resorts in one of the collections of resorts that Diamond and its affiliates operate.

Diamond Resorts has over 30 sales centers across the globe, a majority of which are located at managed resorts. A relatively small portion of Diamond Resorts' sales, primarily to existing members, are conducted through its call centers. Diamond originates the loans to provide financing to VOI purchasers. The points-based loans that it originated to finance purchasing points in one of the collections are collateralized by a beneficial interest in a trust or similar arrangement whereby a trustee holds legal title to the deeded fee-simple interests on that collection members' behalf. Based on the collateral pool's aggregate loan balance, 100% of the series 2021-1 transaction will consist of points-based loans. There are no mortgage or installment loans in the series 2021-1 portfolio.

Timeshare Property Regimes

A vacation ownership interest (VOI) loan is typically an installment sale or mortgage loan with an original term generally ranging from seven to 10 years, and is secured by a right to use the property or by a deeded interest, as applicable. Historically, timeshares were sold on a fixed-week, fixed-unit basis, which gives the timeshare owner the right to use a designated unit in a specified property for a defined time period each year in perpetuity. Since the early 1990s, some VOIs have been sold through a points program, whereby purchasers buy points in a system that entitles them to use any of the properties within a developer's system at any time during the year, subject to availability. While most fixed-week VOIs are exchangeable, the points system allows VOI owners greater flexibility because the owner can determine when, where, and how long each timeshare vacation occurs.

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Underwriting And Collection Process

Diamond's underwriting process allows it, among other qualifiers, to automatically approve financing packages based on FICO score. Applicants who do not satisfy Diamond's automated process requirements are considered on a case-by-case basis and are only approved by senior management. When a loan becomes 10 days delinquent, Diamond attempts to collect it internally. After a loan becomes 120 days delinquent, Diamond initiates default processing. If the default on a points-based loan is not cured within 45 days after the obligor receives the default notice, Diamond terminates the obligor's membership in the system and recovers the related points.

Transaction Structure

The series 2021-1 transaction includes four classes of fixed-rate notes that will pay interest and principal monthly in the order of priority shown in table 1.

Table 1

Payment Waterfall

Priority Payment

1 Indenture trustee fee and custodian fees, and indenture trustee, custodian, and backup servicer expenses (expenses capped at $25,000 in annually).

2 Backup servicing fee, transition expenses, and indemnities (transition expenses and indemnities capped at $100,000 in aggregate).

3 Owner trustee fee and expenses commencing in April 2022 (expenses capped at $40,000 annually).

4 Administrator fee and expenses related to taxes commencing in January 2022.

5 Servicing fee.

6 Class A note interest.

7 Class B note interest.

8 Class C note interest.

9 Class D note interest.

10 Note principal distribution amount, pro rata, to classes A, B, C, and D during a nonrapid amortization period; during a rapid amortization period, principal is paid first to the class A notes until zero, then to the class B notes until zero, then to the class C notes until zero, and then to the class D notes until zero.

11 During a nonrapid amortization period, the extra principal distribution amount, if any, pro rata, to the class A, B, C, and D notes.

12 To the reserve account until the required balance is achieved.

13 Unreimbursed note balance write-down amounts and deferred interest amounts, if any, sequentially to the class A, then B, then C, and then D notes.

14 Any expenses incurred by the indenture trustee and custodian not paid above.

15 Any amounts due to the backup servicer not paid above.

16 Any expenses incurred by the owner trustee not paid above.

17 Any expenses incurred by the administrator not paid above.

18 To the letter of credit bank (or other party as directed by the servicer) any fees, expenses or drawn amounts, and interest due.

19 Any remaining funds to the issuer's beneficial interest owners.

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A rapid amortization period will commence if:

- The three-month average default level is greater than or equal to 0.75%;

- The recovery ratio is less than 25%;

- The cumulative default level exceeds 25%; or

- The overcollateralization amount is less than its required amount for two immediately preceding payment dates.

Collateral

The series 2021-1's VOI loans must satisfy various eligibility criteria, including the following:

The VOI loans that are included in the series 2021-1 transaction must satisfy various eligibility criteria, including, but not limited to the following:

- None of the obligors has ever been delinquent on a timeshare loan for more than 180 days.

- No principal or interest payment is 30 days or more delinquent.

- At origination, each obligor must have equity equal to at least 10% of the timeshare property's price.

- Payments must be made in U.S. dollars.

- Such loan is not subject to force majeure deferral.

The collateral pool is seasoned approximately 14 months. The weighted average remaining life of the collateral pool is approximately 106 months. The weighted average FICO score of the pool is 736.

Force majeure deferral/non-force majeure deferral

Per the transaction documents, the servicer will be permitted to modify, waive, amend, or defer the terms of a timeshare loan, up to a maximum cap of 5% of the aggregate closing date collateral balance, in connection with a force majeure event. A force majeure loan is defined as one in which a natural disaster, epidemic or pandemic, government mandated shutdown of economy, act of terror or similar occurrences has had a direct impact on the ability of the related Obligor to make payments due to disruption of employment or to place of residence, as determined by the servicer.

The timeshare loans that become part of this deferral bucket will not be included in the delinquency or default calculations during such time. A loan will not be considered a force majeure loan if the obligor fails to pay amounts due during the deferral period or the obligor has made two consecutive payments in full during the deferral period. The force majeure relief period for such deferrals is typically up to six months.

In addition, the servicer is permitted to modify, waive, amend, or defer the terms of any timeshare loan (excluding a force majeure deferral), up to 5.0% of the aggregate closing date collateral balance, so long as it does so in accordance with its credit and collection policies (non-force majeure modification).

We ran additional sensitivities to test the liquidity of the transaction under certain scenarios to address this risk (see detailed results of the stressed runs in the Cash Flow Assumptions And Sensitivity Analysis section). We believe these transactions have significant excess spread and

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can continue to pay timely interest under such short-term disruptions to the cash flow.

Table 2A shows the series 2021-1 transaction's pool characteristics as well as those of the previous transactions.

Table 2A

Series Statistical Portfolio Characteristics

2021-1 2019-1 2018-1 2017-1 2016-1

Aggregate loan balance ($)(i) 254,633,365 241,071,479 236,842,104 271,809,697 163,052,047

No. of loans 9,305 9,575 9,943 10,582 6,473

Loan balance range ($) 1,004-149,408 215-149,266 200-148,128 255-266,982 120-147,265

Avg. loan balance ($) 27,365 25,177 23,820 25,686 25,190

Coupon rate range (%) 6.00-23.99 6.00-21.99 10.99-20.11 11.30-19.99 11.40-17.99

Weighted avg. coupon rate (%) 15.47 14.52 14.21 14.25 14.19

Original term range (mos.) 120-120 120-120 120-120 120-120 84-120

Weighted avg. original term (mos.) 120 120 120 120 120

Derived obligor equity range (%) 10.00-95.46 10.00-95.55 10.00-100.00 10.00-95.19 10.28-99.85

Weighted avg. derived obligor equity (%) 28.76 30.29 31.44 29.50 31.73

Remaining term range (mos.) 2-119 1-119 1-118 1-118 1-119

Weighted avg. remaining term (mos.) 106 103 106 109 113

Seasoning range (mos.) 1-118 1-119 2-119 2-119 1-119

Weighted avg. seasoning (mos.) 14 17 14 11 7

Range of FICO scores 550-844 550-851 600 -860 581-879 551-844

Weighted avg. FICO score 736 736 743.00 732 732

Domestic obligors (%)(ii) 99.40 99.17 98.90 99.23 99.28

Foreign obligors (%) 0.60 0.83 1.10 0.77 0.72

Statistical cut-off date 2/28/2021 6/30/2019 7/31/2018 8/31/2017 9/30/2016

(i)Aggregate loan balances are rounded to nearest dollar.

In addition, we compared the series 2021-1 transaction's pool characteristics with those of other developers (see table 2B).

Table 2B

Statistical Portfolio Characteristics(i)

Diamond Sierra Hilton Accelerated 2021-1 2021-1 BXG 2020-A HINTT 2020-A 2020-A 2018-1

Aggregate loan 254,633,365 306,124,757 138,917,835 223,982,588 315,000,718 131,924,525 balance ($)

No. of loans 9,305 13,056 10,191 12,914 9,995 11,472

Range of loan 1,004-149,408 501-99,884 1,001-128,905 2,505-323,100 203-248,561 19.89-111,717 balances ($)

Avg. loan balance ($) 27,365 23,447 13,631 17,344 31,516 11,499

Range of coupon 6.00-23.99 6.00-18.49 6.00-17.99 0.00-18.00 3.90-19.50 6.00-17.99 rates (%)

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Table 2B

Statistical Portfolio Characteristics(i) (cont.)

Diamond Sierra Hilton Accelerated 2021-1 2021-1 BXG 2020-A HINTT 2020-A 2020-A 2018-1

Weighted avg. 15.5 14.6 14.5 15.1 12.5 15.8 coupon rate (%)

Range of original 120-120 12-180 36-120 12-180 12-180 36-120 terms (mos.)

Weighted avg. 120 120 120 124 122 119 original term (mos.)

Range of remaining 2-119 1-178 10-119 2-180 2-179 4-120 terms (mos.)

Weighted avg. 106 108 105 109 110 106 remaining term (mos.)

Range of seasoning 1-118 0-150 1-110 0-114 1-129 0-50 (mos.)

Weighted avg. 14.0 12.0 14.3 15.0 12.0 13.0 seasoning (mos.)

Range of current 550-844 600-818 572-844 600-850 600-800 575-844 FICO scores

Weighted avg. 736 730 726 734 750 708 current FICO score

Weighted avg. down 29 37 25 19 27 16 payment/original equity (%)

Foreign/U.S. (%) 0.6/99.4 0.1/99.9 0.5/99.5 4.4/95.6 13.7/86.3 0.9/99.1

Closing date Apr-21 Mar-21 Oct-20 Sep-20 Jun-20 Jun-19

(i)All fields are as of each transaction cutoff date. Diamond 2021-1--Diamond Resorts Owner Trust 2021-1. Sierra 2021-1--Sierra Timeshare 2020-2 Receivables Funding LLC. BXG 2020-A--BXG Receivables Note Trust 2020-A. HINTT 2020-A—Holiday Inn Timeshare Trust 2020-A. Hilton 2019-A--Hilton Grand Vacations Trust 2019-A. Accelerated 2018-1--Accelerated Assets 2018-1 LLC.

Prefunding period

The issuer will make an initial deposit of approximately 25% of the aggregate initial notes balance into a prefunding account. The issuer may use this to purchase additional collateral for approximately a six-month period, provided that neither a trigger event period has commenced nor an event of default has occurred. The prefunding period will also be terminated if the balance in the account falls below $10,000. Amounts remaining in the prefunding account at the end of the prefunding period will be distributed to the noteholders as principal. For our analysis, we used the expected closing date cash portion of the prefunding loan balance of approximately $84.88 million.

Additional loans purchased must satisfy certain eligibility criteria, including, but not limited to the following:

- The loan does not have an original term greater than 120 months.

- The loan has a maximum original balance of $150,000.

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- If an obligor has a FICO score, such subsequent timeshare loan does not have a FICO score less than 600.

- The loan has equity of 10% of the purchase price.

- The weighted average coupon rate on all subsequent timeshare loans must be equal to or greater than 15.00%.

- The weighted average FICO score of all subsequent timeshare loans (excluding no FICO score and foreign obligors) must be equal to or greater than 735.

- Domestic loan obligors with no FICO score constitutes less than 0.50% of the aggregate loan balance of all subsequent timeshare loans.

- Obligors with a FICO score less than 650 (excluding no FICO score and foreign obligors) do not represent more than 7.00%; obligors with a FICO score less than 700 (excluding no FICO score and foreign obligors) do not represent more than 25.00%; obligors with a FICO score less than 750 (excluding no FICO score and foreign obligors) do not represent more than 55.00%.

- Foreign non-Canadian obligors do not represent more than 0.50% of the aggregate loan balance of all subsequent timeshare loans.

S&P Global Ratings' Expected Gross Default Assumptions: Domestic Only: 23.9%; Total Pool (Including Foreign): 25.1%

To derive the base-case gross default rate for the 2021-1 transaction, we examined the static loan pools' historical gross default performance from first-quarter 2008 through second-quarter 2019 on the aggregate and sub-pool levels, broken down by the following FICO score ranges (based on the origination year for those years in which performance data by FICO range is available):

- <600;

- 600-649;

- 650-699;

- 675-699;

- 700-749;

- 750-800;

- 800 and higher;

- Domestic no FICO; and

- Foreign no FICO.

Diamond's static pools for first-quarter 2008 through first-quarter 2016 had less than approximately 5.0% of their original aggregate loan balances outstanding. We used the loan balance data from these vintages to construct an aggregate default timing curve for each FICO score range weighted by the origination amount. We then estimated the expected defaults for each FICO score category sub-pool in each of the second-quarter 2016 through second-quarter 2019 static pools using the actual cumulative default data to date and the applicable default timing curve. We then applied these expected default rates to form an expected default rate assumption for the pool.

For example, we reviewed the actual cumulative gross default rate for Diamond loans originated

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from first-quarter 2008 through first-quarter 2016 to borrowers with FICO scores in the 650-699 range and the actual cumulative default rate to date for loans originated in first-quarter 2017 to Diamond borrowers in the same FICO score range (see chart 1). Assuming the cumulative defaults of the Diamond loans originated in first-quarter 2017 in the 650-699 FICO score sub-pool follow a similar timing pattern to those from the weighted average pools in the first-quarter 2008 through first-quarter 2016 650-699 FICO score sub-pool, our expected gross default rate for the first-quarter 2017 650-674 FICO score sub-pool is approximately 29.7.

Chart 1

We repeated the aforementioned process for each quarterly FICO vintage in the first-quarter 2008 through second-quarter 2019 static pool vintages. We weighted the results for each FICO band by the amount of originations in that vintage to arrive at the expected cumulative gross default rate for each FICO category.

To account for additional collateral that the issuer will purchase from the originator during the prefunding period, we constructed a worst-case pool based on the portfolio limitations and blended that pool with the initial collateral pool when generating the gross default assumptions.

Due to a rise in industrywide third-party activities where Diamond customers are solicited by firms claiming to have the ability to get the customers out of their contracts, an additional stress was added for legal holds. In June 2017, management adopted a plan to mitigate the issue with both preventative and corrective actions. There have been improvements in the level of legal holds since 2015 brought on by proactive strategies by Diamond, including communication with new and existing customers and a transition program through which Diamond helps customers who wish to exist their timeshare do so in a legal manner. Consistent with the 2019-1 transaction, we applied a conservative cushion to all seasoning buckets to account for legal hold volatility. The cushion was applied to all seasoning buckets as the company observed that all customers are being targeted by third party activities, not only the newer customers. Additionally, we observed the losses from

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third-party activity has declined since the levels observed in 2019; therefore, we reduced the legal hold stress cushion in this deal.

We applied a 1.25x multiple to the resulting expected cumulative gross default rate to reflect our view of the current stressed environment. The 1.25x multiple effectively increases our base case or 'B' loss assumptions to a 'BB' stress. We applied seasoning credit to the resulting cumulative gross default numbers based on the collateral pool's seasoning. We typically assume the expected default rate decreases as loans mature past 24 months.

Based on this analysis and the loan pool's credit score distribution, we expect the pool to experience a cumulative gross default rate of 25.1% as a base case, which is a combination of the domestic segment cumulative gross default rate of 23.9%, the legal hold stress, and the foreign segment default expectations. We also reviewed the sovereign risk criteria and made adjustments to the hurdle rates, if necessary.

Stressed Expected Gross Default Assumptions: 75.2% ('AAA'), 57.6% ('A'), 43.3% ('BBB'), And 34.7% ('BB')

We applied compressed multiples to arrive at a gross default rate as high as 75.2% under a 'AAA' scenario after giving credit to the seasoning in the collateral pool, 57.6% under a 'A' scenario, 43.3% under a 'BBB' scenario, and 34.7% under a 'BB' scenario. For example, at the 'AAA' rating level, we compress our typical 4.25x multiple depending on our base-case assumption; at the 'A', we compress the 2.75x multiple, at the 'BBB' level, the 2.0x multiple; and at the 'BB' level, the 1.5x multiple.

In the series 2021-1 transaction, we believe that, depending on the default timing and voluntary prepayment rate assumptions, the notes can withstand cumulative gross default rates of 71.1%-80.3% for class A, 61.1%-66.0% for class B, 47.4%-53.1% for class C, and 38.7%-45.4% for class D notes.

We determined these rates after considering that the transaction must pay the full and timely interest and ultimate principal payments on the rated notes (see the Cash Flow Assumptions And Sensitivity Analysis section below for the different scenarios we reviewed). In our analysis, we did not assume any recovery on the loans. If the cumulative percentage of defaults rises higher than the assumed stressed expected gross default assumption, or if the loans' prepayment rate or their default timing is different than what we have assumed in our analysis, the series 2021-1 notes may experience an interest or principal payment default.

Credit Support

Credit support for the notes is provided by:

- The class B, C, and D notes' 54.50% subordination for the class A notes' benefit;

- The class C, and D notes' 30.00% subordination for the class B notes' benefit;

- The class D notes' 10.75% subordination for the class C notes' benefit;

- The initial 6.00% overcollateralization;

- A reserve account with an initial requirement equal to 1.0% of the initial collateral balance, the amount of which will be funded in cash or represented by a letter of credit;

- The excess spread, which initially may be approximately 12.78% per year; and

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- The performance-based triggers that, if breached, will result in the accumulation of all cash, the allocation of all available funds to pay down the debt, or both. The cash accumulation will occur if the average delinquency ratio for the previous three months exceeds 9%. Also, paydowns will occur if the average default rate for the previous three months exceeds 0.75%, the cumulative default level exceeds 25%, the overcollateralization amount drops below its required amount for the two preceding payment dates, or recovery for the previous three payment periods falls below 25%.

Cash Flow Assumptions And Sensitivity Analysis

According to our criteria for rating timeshare loan securitizations, we ran various cash flow scenarios to determine the appropriate preliminary ratings for the series 2021-1 notes given the transaction's credit enhancement, and we tested the transaction's sensitivity to changes in default timing and different voluntary prepayment assumptions. Our expected gross default assumption and default timing patterns are applied to the collateral pool in the aggregate. Our methodology distributes defaults among the collateral to match as closely as possible, in aggregate, our gross default assumptions and default timing patterns. Depending on how the collateral pool is represented, some collateral groups may experience higher or lower defaults based on their seasoning.

In our cash flow modeling, we make sure the deferred interest (carry-over or carry-forward interest) is paid by the legal final maturity date even though a failure to pay deferred interest might not be an event of default under the transaction documents. We ran several gross default rate timing curves to test the transaction under stressed gross default rate assumptions applied under different timing scenarios (see table 3) and each default timing scenario (or curve) under various voluntary prepayment assumptions.

Table 3

Gross Default Timing Curves For Cash Flow Modeling (%)

Pattern (curve)

Year A B C D E F G H I S1 S2

1 13.00 50.00 50.00 50.00 50.00 45.00 40.00 40.00 10.00 15.88 37.73

2 47.00 25.00 25.00 5.00 50.00 30.00 30.00 25.00 15.00 33.69 27.21

3 22.00 15.00 25.00 5.00 0.00 3.13 15.00 15.00 15.00 22.04 16.10

4 10.00 10.00 0.00 5.00 0.00 3.13 2.16 2.86 20.00 13.04 10.01

5 5.00 0.00 0.00 5.00 0.00 3.13 2.14 2.86 20.00 8.11 4.56

6 1.00 0.00 0.00 5.00 0.00 3.13 2.14 2.86 10.00 3.70 2.47

7 0.60 0.00 0.00 5.00 0.00 3.12 2.14 2.86 10.00 2.00 1.17

8 0.70 0.00 0.00 5.00 0.00 3.12 2.14 2.86 0.00 0.95 0.49

9 0.30 0.00 0.00 5.00 0.00 3.12 2.14 2.85 0.00 0.40 0.17

10 0.40 0.00 0.00 10.00 0.00 3.12 2.14 2.85 0.00 0.21 0.09

Break-even gross defaults

We also determined what we believe to be the break-even gross default levels for each scenario (see table 4). Given the high expected gross default assumptions, we ran various stress scenarios

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under a 10.0% constant prepayment rate (CPR) voluntary prepayment assumption, a 5% CPR and a 0% CPR. We believe the results under the 5% CPR assumption are more representative because higher default proxies combined with higher CPRs would cause the targeted defaults to exceed the life of the collateral in our analysis.

For the class A notes, not all of the scenarios we ran have a break-even default level greater than 75.2% (the 'AAA' default assumption). Given that the hurdle rates are relatively high at 75.2%, we ran additional break evens with a 5% CPR and 0% CPR assumptions. All results across the default patterns (except the I curve) have a break-even rate greater than 75.2% at a 5% CPR. For class B, all the scenarios we ran under a 10.0% CPR voluntary prepayment assumption have a break-even default level greater than 57.6% (the 'A' default assumption). For class C, all of the scenarios we ran under a 10.0% CPR voluntary prepayment assumption have a break-even default level greater than 43.3% (the 'BBB' default assumption). For class D, all of the scenarios we ran under a 10.0% CPR voluntary prepayment assumption have a break-even default level greater than 34.7% (the 'BB' default assumption). See table 4 for further details on break evens under a 5% CPR assumption.

Table 4

Break-Even Gross Defaults (%)(i)

Class

Pattern (curve) A B C D

A 80.3 64.1 50.1 41.5

B 78.9 62.2 48.4 39.6

C 78.6 61.8 48.1 39.3

D 77.1 64.3 51.6 42.7

E 77.8 61.1 47.4 38.7

F 79.5 63.9 50.2 41.3

G 79.7 63.7 49.8 41.0

H 79.8 63.9 50.4 41.6

I 71.1 66.0 53.1 45.4

S1 80.3 64.7 50.7 42.3

S2 80.0 63.4 49.5 40.8

(i)Results assuming a 5% CPR. CPR--Constant prepayment rate.

For some of the scenarios, we note that the targeted default for certain default curves that is specified in table 3 exceeds the life of the collateral in our analysis. As a result, the break-even gross default rate indicated for these curves in table 4 may understate the amount of defaults that the tranche can withstand if run under a 10% CPR voluntary prepayment assumption.

Under each of the simulated default scenarios and prepayment assumptions, the cash flow modeling exercise indicates that the noteholders will be paid timely interest and ultimate principal even if the series 2021-1 loan pool's cumulative defaults increase to the levels listed in table 4. Under certain default patterns, the transaction can withstand marginally lower defaults than our default assumptions. We note that if defaults under these patterns were to exceed our default assumptions, the classes may experience a shortfall in the payment of carry-forward interest on the legal final maturity date. However, given that the break-evens pass in all other default scenarios, while applying the conservative assumptions simultaneously on all other variables, we

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believe the results are still consistent with the assigned ratings.

Recovery Rate Trigger

Similar to other recent timeshare transactions, the series 2021-1 transaction includes a recovery rate trigger in the payment waterfall. Under our current default timing assumptions and cash flow modeling, we typically assume zero recovery for defaulted timeshare loans. In our view, timeshare loan recovery levels and timing are subject to several variables, such as whether the developer has an active sales channel to remarket the defaulted loans and discretion regarding resale timing.

When modeling the recovery rate trigger, we believe the break-even default levels may be inflated because we assume zero recoveries, the recovery rate trigger test will fail immediately, and the transaction will begin to make turbo payments to the rated notes. Therefore, a transaction with this trigger appears able to withstand higher default stress scenarios than one without the trigger. Furthermore, transactions structured with this type of trigger may have classes that appear marginally weaker than those without the trigger (or without modeling for the trigger in the cash flow) under our current default timing assumptions and cash flow modeling.

In addition to our customary default stress scenarios, we ran other stress scenarios and sensitivity analyses. To simulate a scenario in which there is a period of time before the onset of a representative rating-level stress environment, we developed a revised set of default patterns that delay the onset of stress by one year ("delayed onset"). In year one, we model base-case defaults that are derived by taking the product of the base-case cumulative gross loss assumption on the collateral pool (25.1%) and the year-one defaults under the developer-specific loss curve (37.7%; see curve S2 in table 5), adjusting for the stressed expected gross default assumption for that class. During the first 12 months only, we model recoveries at a level slightly above the recovery rate trigger level. Based on this scenario for the first year, we developed the revised sensitivity default patterns shown in table 5.

Table 5

Revised Sensitivity Default Patterns (%)

Pattern (curve)

Year A B C D E F G H I S1 S2

Class A

1 12.62 12.62 12.62 12.62 12.62 12.62 12.62 12.62 12.62 12.62 12.62

2 13.00 50.00 50.00 50.00 50.00 45.00 40.00 40.00 10.00 15.88 37.73

3 47.00 25.00 25.00 5.00 37.38 30.00 30.00 25.00 15.00 33.69 27.21

4 22.00 12.38 12.38 5.00 0.00 3.13 15.00 15.00 15.00 22.04 16.10

5 5.38 0.00 0.00 5.00 0.00 3.13 2.16 2.86 20.00 13.04 6.34

6 0.00 0.00 0.00 5.00 0.00 3.13 0.22 2.86 20.00 2.74 0.00

7 0.00 0.00 0.00 5.00 0.00 2.99 0.00 1.66 7.38 0.00 0.00

8 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

9 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10 0.00 0.00 0.00 2.38 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Class B

1 16.47 16.47 16.47 16.47 16.47 16.47 16.47 16.47 16.47 16.47 16.47

2 13.00 50.00 50.00 50.00 50.00 45.00 40.00 40.00 10.00 15.88 37.73

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Table 5

Revised Sensitivity Default Patterns (%) (cont.)

Pattern (curve)

Year A B C D E F G H I S1 S2

3 47.00 25.00 25.00 5.00 33.53 30.00 30.00 25.00 15.00 33.69 27.21

4 22.00 8.53 8.53 5.00 0.00 3.13 13.53 15.00 15.00 22.04 16.10

5 1.53 0.00 0.00 5.00 0.00 3.13 0.00 2.86 20.00 11.93 2.49

6 0.00 0.00 0.00 5.00 0.00 2.27 0.00 0.67 20.00 0.00 0.00

7 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 3.53 0.00 0.00

8 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

9 0.00 0.00 0.00 3.53 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Class C

1 21.92 21.92 21.92 21.92 21.92 21.92 21.92 21.92 21.92 21.92 21.92

2 13.00 50.00 50.00 50.00 50.00 45.00 40.00 40.00 10.00 15.88 37.73

3 47.00 25.00 25.00 5.00 28.08 30.00 30.00 25.00 15.00 33.69 27.21

4 18.08 3.08 3.08 5.00 0.00 3.08 8.08 13.08 15.00 22.04 13.14

5 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 20.00 6.48 0.00

6 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 18.08 0.00 0.00

7 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

8 0.00 0.00 0.00 3.08 0.00 0.00 0.00 0.00 0.00 0.00 0.00

9 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Class D

1 27.31 27.31 27.31 27.31 27.31 27.31 27.31 27.31 27.31 27.31 27.31

2 13.00 50.00 50.00 50.00 50.00 45.00 40.00 40.00 10.00 15.88 37.73

3 47.00 22.69 22.69 5.00 22.69 27.69 30.00 25.00 15.00 33.69 27.21

4 12.69 0.00 0.00 5.00 0.00 0.00 2.69 7.69 15.00 22.04 7.75

5 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 20.00 1.09 0.00

6 0.00 0.00 0.00 5.00 0.00 0.00 0.00 0.00 12.69 0.00 0.00

7 0.00 0.00 0.00 2.69 0.00 0.00 0.00 0.00 0.00 0.00 0.00

8 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

9 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

10 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

The proportion of stressed defaults allocated to year one for the two classes increases as one moves down the capital structure. This suggests that the structure should be able to withstand a greater proportion of losses at the higher rating levels once the stresses begin after the first year. In addition, we model the transaction without the recovery rate trigger.

In determining the applicable rating consistent with previous transactions, we look at the maximum break-even for each default pattern under both the delayed onset and no recovery rate

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trigger scenarios. Depending on qualitative factors, including the collateral characteristics, we might not require the transaction to pass all default patterns under the sensitivity at a given rating level.

Under these stress assumptions and sensitivity scenarios, which, in our opinion, are commensurate with the assigned preliminary ratings, we expect the series 2021-1 transaction's cash flows to be sufficient for the full and timely interest and ultimate principal payments on the notes. We believe that the additional sensitivity analysis that we performed on the series 2021-1 notes is sufficient to address the recovery trigger's effect on the cash flow results.

We compared this transaction's credit and cash flow characteristics with those of prior timeshare transactions from the same issuer, including base-case cumulative gross default assumptions and with other recent new issuances (see tables 6A and 6B).

Table 6A

Base-Case Default Assumptions And Credit Enhancement

Diamond Diamond Diamond Diamond Diamond 2021-1 2019-1 2018-1 2017-1 2016-1

Base-case default 25.1 17.0 16.2 18.2 14.4 assumption (%)

Subordination and overcollateralization

'AAA' 60.50 38.00 49.00

'AA+'

'AA'

'AA-'

'A+' 24.50

'A' 36.00 18.00 24.25 24.50

'A-'

'BBB+' 8.00

'BBB' 16.75 6.00 9.50 8.00

'BBB-'

'BB+' 2.00

'BB' 6.00 5.00 5.00

'BB-'

'B+'

'B'

Diamond—Diamond Resorts Owners Trust

Table 6B

Base-Case Default Assumptions And Advance Rates

Diamond Sierra BXG HINTT Sierra MVW Hilton 2021-1 2021-1 2020-A 2020-A 2020-2 2020-1 2020-A

Base-case default 25.1 24.9 26.8 29.5 25.2 13.9 13.0 assumption(%)

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Table 6B

Base-Case Default Assumptions And Advance Rates (cont.)

Diamond Sierra BXG HINTT Sierra MVW Hilton 2021-1 2021-1 2020-A 2020-A 2020-2 2020-1 2020-A

Weighted avg. seasoning 14 12 14 15 14 8 12 (mos.)

Weighted avg. FICO Score 736 728 726 735 727 735 750

Advance rate (%)

'AAA' 39.5 34.2 32.6 31.4 27.0 62.2 56.1

'AA-'

'A+'

'A' 64.0 61.8 55.1 57.3 80.9 75.9

'A-' 64.8

'BBB+'

'BBB' 83.3 86.9 76.1 79.8 92.4 90.5

'BBB-'

'BB' 94.0 98.0 85.9 90 98

'BB-'

'B' 99

Diamond 2021-1--Diamond Resorts Owner Trust 2021-1. Sierra 2021-1--Sierra Timeshare 2021-1 Receivables Funding LLC. BXG 2020-A--Bluegreen Note Trust 2020-A. HINTT 2020-A--HIN Timeshare Trust 2020-A. Sierra 2020-2--Sierra Timeshare 2020-2 Receivables Funding LLC. MVW--MVW Owner Trust 2020-1. Hilton 2020-A--Hilton Grand Vacations Trust 2020-A.

We compared the observed cushion of the break-even gross default levels over the stressed expected gross default assumptions for each rating level with those of several recent timeshare transactions (see table 7), and the observed cushion of the break-even gross default levels in our sensitivity runs pertaining to the recovery rate trigger over the stressed expected gross default assumptions for each rating level (see table 8).

Table 7

Standard Default Patterns: Average/Minimum Cushion

BXG Diamond Diamond Diamond Diamond Sierra 2020-A HINTT Accelerated 2021-1(ii) 2019-1 2018-1 2017-1 2021-1 (ii) 2020-A (ii) 2018-1

Recovery rate Yes Yes Yes Yes Yes Yes Yes Yes trigger?

Class A

Greater than Avg./min. 5.00%

2.00%-4.99% Avg. Avg. Avg.

1.00%-1.99% Avg. Avg. Avg.

0.10%-0.99% Min. Avg.

Less than Min. Min. Min. Min. Min. Min. 0.10%(i)

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Table 7

Standard Default Patterns: Average/Minimum Cushion (cont.)

BXG Diamond Diamond Diamond Diamond Sierra 2020-A HINTT Accelerated 2021-1(ii) 2019-1 2018-1 2017-1 2021-1 (ii) 2020-A (ii) 2018-1

Class B

Greater than Avg. Avg. Avg. Avg. 5.00%

2.00%-4.99% Min. Avg. Avg./min. Min. Min.

1.00%-1.99% Avg.

0.10%-0.99% Min. Min. Avg.

Less than Min. Min. 0.10%(i)

Class C

Greater than Avg. 5.00%

2.00%-4.99% Min. Avg. Avg. Avg./min. Avg. Avg./min. Avg.

1.00%-1.99% Min. Min.

0.10%-0.99% Min. Min.

Less than 0.10%(i)

Class D

Greater than Avg. Avg. Avg. Avg. 5.00%

2.00%-4.99% Min. Min. Min. Avg. Min.

1.00%-1.99%

0.10%-0.99%

Less than Min. 0.10%(i)

Class E

Greater than Avg. 5.00%

2.00%-4.99% Min.

1.00%-1.99%

0.10%-0.99%

Less than 0.10%(i)

(i)Includes figures below 0.00%. (ii)Results assuming a 5% CPR. Diamond--Diamond Resorts Owner Trust. Sierra 2021-1--Sierra Timeshare 2021-1 Receivables Funding LLC. BXG--BXG Receivables Note Trust. HINTT--HIN Timeshare Trust. Accelerated 2018-1--Accelerated Assets 2018-1 LLC. CPR--Constant prepayment rate.

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Table 8

Recovery Rate Trigger Sensitivity: Average/Minimum Cushion

Diamond Diamond Diamond Diamond Sierra BXG HINTT Accelerated 2021-1 2019-1 2018-1 2017-1 2021-1 2020-A 2020-A 2018-1

Class A

Greater than Avg. 5.00%

2.00%-4.99% Avg.(ii) Min. Avg.

1.00%-1.99% Avg.

0.10%-0.99% Avg. Avg.

Less than Min.(ii) Min. Min. Min. Avg./min. Avg./min. Min. 0.10%(i)

Class B

Greater than Avg. Avg./min. 5.00%

2.00%-4.99% Avg. Avg.

1.00%-1.99% Avg. Min. Min. Avg.

0.10%-0.99% Min. Avg. Avg.

Less than Min. Min. Min. Min. 0.10%(i)

Class C

Greater than Avg. Avg./min. 5.00%

2.00%-4.99% Min. Avg./min. Avg.

1.00%-1.99% Avg. Avg.

0.10%-0.99% Avg. Min.

Less than Min. Min. Min. 0.10%(i)

Class D

Greater than Avg. Avg. Avg. Avg./min. 5.00%

2.00%-4.99% Min. Min. Min. Avg./min.

1.00%-1.99%

0.10%-0.99%

Less than 0.10%(i)

Class E

Greater than 5.00%

2.00%-4.99% Avg./min.

1.00%-1.99%

0.10%-0.99%

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Table 8

Recovery Rate Trigger Sensitivity: Average/Minimum Cushion (cont.)

Diamond Diamond Diamond Diamond Sierra BXG HINTT Accelerated 2021-1 2019-1 2018-1 2017-1 2021-1 2020-A 2020-A 2018-1

Less than 0.10%(i)

(i)Includes figures below 0.00%. (ii)Delayed onset sensitivity assuming 5% CPR. Diamond --Diamond Resorts Owner Trust . Sierra 2021-1--Sierra Timeshare 2021-1 Receivables Funding LLC. BXG--BXG Receivables Note Trust. HINTT--HIN Timeshare Trust. Accelerated 2018-1--Accelerated Assets 2018-1 LLC. CPR--Constant prepayment rate.

In table 7, we indicate a range for the break-even gross default levels' average observed cushions with respect to each default timing curve over the stressed expected gross default assumptions for each rating level, as well as a range for the minimum observed cushions. For example, for the series 2021-1 class A notes, the average cushion of break-even default levels over the 75.2% stressed expected gross default assumption at the 'AAA' level is 2.00%-4.99% and the minimum cushion is less than 0.10%.

As a sensitivity test, we reviewed the maximum break-even for each default pattern under both the delayed onset and no recovery rate trigger scenarios. In table 8, we indicate, with respect to the maximum break-even for each of these two sensitivity scenarios at the 'AAA', 'A', 'BBB', and 'BB' rating levels, the range for the average observed cushions and the minimum observed cushion. For example, for the series 2021-1 class C notes, the average cushion of the maximum break-even sensitivity default levels over the 43.3% stressed expected gross default assumption at the 'BBB' level is greater than 5.00% and the minimum cushion is 2.00%-4.99%.

Additional Sensitivities For Liquidity And Credit Stability

We tested the transaction's ability to withstand incremental liquidity stresses given the current environment. Under these stresses, all the notes could withstand a 50% reduction in excess spread (amounts available after payment of senior fees and interest on the notes) over a 12-month period, under a 5% CPR. We did not apply recovery credit to the defaulted collateral. We note that if the CPR is in excess of the 5% tested, the notes may not be able to support the current ratings assigned.

As of Dec. 31, 2021, Diamond's total deferrals were 0.1%, and delinquencies for all timeshare loans originated were 5.44%. This transaction will not include any deferred loans or delinquent loans on the closing date. We believe the results of the sensitivity scenarios are adequate at the requisite rating levels at this time.

In addition to analyzing break-even cash flows and the incremental stressed scenarios discussed above, we also conducted a sensitivity analysis to see whether under a moderate ('BBB') stress scenario, all else being equal, our preliminary ratings would remain within the tolerances allowed by our rating stability criteria. Under a 'BBB' stress environment, we don't expect our ratings on the class A notes to be lowered by more than one rating category and the class B, C, and D notes to be lowered by more than two rating categories from our preliminary ratings within the next 12 months. These rating movements are within the tolerances specified by our credit stability criteria (see "Methodology: Credit Stability Criteria," published May 3, 2010).

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Legal Review

The VOI loans are likely to be sold directly from Diamond Resorts Finance Holding Co. to Diamond Resorts Seller 2021-1 LLC (the seller)--Diamond's special-purpose, indirect, and wholly owned subsidiary--which will then convey the loans to the issuer.

The issuer's and the seller's special-purpose entity provisions are likely to be consistent with S&P Global Ratings' bankruptcy-remoteness criteria. In rating this transaction, we will review the legal matters that we believe are relevant to our analysis, as outlined in our criteria.

Environmental, Social, And Governance (ESG)

Our rating analysis considered the potential exposure of the transaction to ESG credit factors. We have not identified any material ESG credit factors in our analysis. Therefore, ESG credit factors do not influence our assessment of the transaction's credit quality.

Related Criteria

- Criteria | Structured Finance | General: Global Framework For Payment Structure And Cash Flow Analysis Of Structured Finance Securities, Dec. 22, 2020

- Criteria | Structured Finance | Legal: U.S. Structured Finance Asset Isolation And Special-Purpose Entity Criteria, May 15, 2019

- Criteria | Structured Finance | General: Counterparty Risk Framework: Methodology And Assumptions, March 8, 2019

- Criteria | Structured Finance | General: Incorporating Sovereign Risk In Rating Structured Finance Securities: Methodology And Assumptions, Jan. 30, 2019

- Criteria | Structured Finance | General: Global Framework For Assessing Operational Risk In Structured Finance Transactions, Oct. 9, 2014

- General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012

- General Criteria: Principles Of Credit Ratings, Feb. 16, 2011

- Criteria | Structured Finance | General: Methodology For Servicer Risk Assessment, May 28, 2009

- Criteria | Structured Finance | ABS: Rating Criteria For U.S. Timeshare Loan Securitizations, Oct. 8, 2003

Related Research

- Hilton Grand Vacations Inc. Ratings Placed On CreditWatch Negative On Plan To Acquire Diamond Resorts, March 10, 2021

- COVID-19 Containment Measures Put U.S. Timeshare Loan Payments To The Test, April 2, 2020

- Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic Factors, Dec. 16, 2016

www.standardandpoors.com April 7, 2021 20

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