Starwood 2005 Annual Report Download - page 107

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STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
AND STARWOOD HOTELS & RESORTS
NOTES TO FINANCIAL STATEMENTS Ì (Continued)
The Company had the following commercial commitments outstanding as of December 31, 2005 (in
millions):
Amount of Commitment Expiration Per Period
Less Than After
Total 1 Year 1-3 Years 3-5 Years 5 Years
Standby letters of credit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $129 $129 $Ì $ Ì $ Ì
Hotel loan guarantees(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 47 4 43 Ì Ì
Other commercial commitments ÏÏÏÏÏÏÏÏ Ì Ì Ì Ì Ì
Total commercial commitments ÏÏÏÏÏÏÏÏÏ $176 $133 $43 $ Ì $ Ì
(1) Excludes fair value of guarantees which are reÖected in the Company's consolidated balance sheet.
Guaranteed Loans and Commitments. In limited cases, the Company has made loans to owners of or
partners in hotel or resort ventures for which the Company has a management or franchise agreement. Loans
outstanding under this program, excluding the Westin Boston, Seaport Hotel discussed below, totaled
$151 million at December 31, 2005. The Company evaluates these loans for impairment, and at December 31,
2005, believes these loans are collectible. Unfunded loan commitments, excluding the Westin Boston, Seaport
Hotel discussed below, aggregating $28 million were outstanding at December 31, 2005, of which $8 million
are expected to be funded in 2006 and $10 million are expected to be funded in total. These loans typically are
secured by pledges of project ownership interests and/or mortgages on the projects. The Company also has
$90 million of equity and other potential contributions associated with managed or joint venture properties,
$18 million of which is expected to be funded in 2006.
Additionally, during 2004, the Company entered into a long-term management contract to manage the
Westin Boston, Seaport Hotel in Boston, Massachusetts, which is under construction and scheduled to open in
mid-2006. In connection with this project, the Company agreed to provide up to $28 million in mezzanine
loans and other investments (all of which has been funded) as well as various guarantees, including a principal
repayment guarantee for the term of the senior debt (four years with a one-year extension option), which is
capped at $40 million, and a debt service guarantee during the term of the senior debt, which is limited to the
interest expense on the amounts drawn under such debt and principal amortization. Any payments under the
debt service guarantee, attributable to principal, will reduce the cap under the principal repayment guarantee.
The fair value of these guarantees of $3 million is reÖected in other liabilities in the accompanying balance
sheets as of December 31, 2005 and 2004. In addition, Starwood has issued a completion guarantee for this
approximate $200 million project. In the event the completion guarantee is called on, Starwood would have
recourse to a guaranteed maximum price contract from the general contractor, performance bonds from all
major trade contractors and a payment bond from the general contractor. Starwood would only be required to
perform under the completion guarantee in the event of a default by the general contractor that is not cured by
the contractor or the applicable bonds. The Company does not anticipate that it would be required to perform
under these guarantees.
Surety bonds issued on behalf of the Company as of December 31, 2005 totaled $51 million, the majority
of which were required by state or local governments relating to our vacation ownership operations and by
insurers to secure large deductible insurance programs.
In order to secure management contracts, the Company may provide performance guarantees to third-
party owners. Most of these performance guarantees allow the Company to terminate the contract rather than
fund shortfalls if certain performance levels are not met. In limited cases, the Company is obliged to fund
shortfalls in performance levels through the issuance of loans. As of December 31, 2005, the Company had six
management contracts with performance guarantees with possible cash outlays of up to $75 million,
F-44