Starwood 2009 Annual Report Download - page 144

The maturities of the gross VOI notes receivable are as follows (in millions):
2009 2008
December 31,
Due in 1 year...................................................... $ 30 $ 54
Due in 2 years ..................................................... 25 47
Due in 3 years ..................................................... 29 52
Due in 4 years ..................................................... 34 64
Due in 5 years ..................................................... 41 66
Due beyond 5 years ................................................. 177 298
Total gross VOI notes receivable ....................................... $336 $581
The activity in the allowance for VOI loan losses was as follows (in millions):
Balance at January 1, 2009 .................................................. $91
Provision for loan losses .................................................. 64
Write-offs of uncollectible receivables and other ................................. (61)
Balance at December 31, 2009 ............................................... $94
Note 10. Notes Receivable Securitizations
From time to time, the Company securitizes, without recourse, its fixed rate VOI notes receivable. To
accomplish these securitizations, the Company transfers a pool of VOI notes receivable to third-party special
purpose entities (together with the special purpose entities in the next sentence, the “SPEs”) and the SPEs transfer
the VOI notes receivable to qualifying special purpose entities (“QSPEs”). The Company continues to service the
securitized VOI notes receivable pursuant to servicing agreements negotiated at arms-length based on market
conditions; accordingly, the Company has not recognized any servicing assets or liabilities. All of the Company’s
VOI notes receivable securitizations to date have qualified to be, and have been, accounted for as sales. In order to
be accounted for as a sale, the transferor must surrender control of the financial assets and receive consideration
other than beneficial interests in the transferred asset.
With respect to those transactions still outstanding at December 31, 2009, the Company retains economic
interests (the “Retained Interests”) in securitized VOI notes receivables through SPE ownership of QSPE beneficial
interests. The Retained Interests, which are comprised of subordinated interests and interest only strips in the related
VOI notes receivable, provide credit enhancement to the third-party purchasers of the related QSPE beneficial
interests. Retained Interests cash flows are limited to the cash available from the related VOI notes receivable, after
servicing and other related fees, absorbing 100% of any credit losses on the related VOI notes receivable and QSPE
fixed rate interest expense. With respect to those transactions still outstanding at December 31, 2009, the Retained
Interests are classified and accounted for as “available-for-sale” securities. Securities are classified as “available for
sale” if the Company does not have the intent and ability to hold these securities to maturity or these securities were
not bought with the intent to be sold in the near term. These securities are reported at fair value, with credit losses
recorded in the statement of income and other unrealized gains and losses reported in stockholders’ equity.
The Company’s securitization agreements provide the Company with the option, subject to certain limitations,
to repurchase or replace defaulted VOI notes receivable at their outstanding principal amounts. Such activity totaled
$29 million, $23 million and $21 million during 2009, 2008 and 2007, respectively. The Company has been able to
resell the VOIs underlying the VOI notes repurchased or replaced under these provisions without incurring
significant losses. The Company’s replacement of the defaulted VOI notes receivable under the securitization
agreements with new VOI notes receivable resulted in net gains of approximately $3 million, $4 million and
F-21
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)