Starwood 2009 Annual Report Download - page 145

$2 million during 2009, 2008 and 2007, respectively, which are included in vacation ownership and residential sales
and services in the Company’s consolidated statements of income.
In June 2009, the Company securitized approximately $181 million of VOI notes receivable (the “2009-A
Securitization”) resulting in cash proceeds of approximately $125 million. The Company retained $44 million of
interests in the QSPE, which included $43 million of notes the Company effectively owned after the transfer and
$1 million related to the interest only strip. The related loss on the 2009-A Securitization of $2 million is included in
vacation ownership and residential sales and services in the Company’s consolidated statements of income.
Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2009-A
Securitization were as follows: an average discount rate of 12.8%, an average expected annual prepayment rate
including defaults of 17.9%, and an expected weighted average remaining life of prepayable notes receivable of
52 months. These key assumptions are based on the Company’s historical experience.
In December 2009, the Company securitized approximately $200 million of VOI notes receivable (the “2009-
B Securitization”) resulting in cash proceeds of approximately $166 million. The Company retained $31 million of
interests in the QSPE, which included $22 million of notes the Company effectively owned after the transfer and
$9 million related to the interest only strip. The related gain on the 2009-B Securitization of $19 million is included
in vacation ownership and residential sales and services in the Company’s consolidated statements of income.
Key assumptions used in measuring the fair value of the Retained Interests at the time of the 2009-B
Securitization were as follows: an average discount rate of 7.5%, an average expected annual prepayment rate
including defaults of 24.4%, and an expected weighted average remaining life of prepayable notes receivable of
69 months. These key assumptions are based on the Company’s historical experience.
In December 2009, the Company entered into an amendment with the third-party beneficial interest owner
regarding the notes issued in the 2009-A Securitization (the 2009-A Amendment). The amendment to the terms
included a reduction of the coupon rate and an increase in the effective advance rate. As the increase in the advance
rate produced additional cash proceeds of $9 million, this resulted effectively in additional loans sold to the QSPE
from the original over collateralization. The discount rates used in measuring the fair value of the Retained Interests
at the time of the 2009-A Amendment were 6.5% for the interest only strip and 12.8% for the remaining loans
effectively not sold (unchanged from June 2009). The resulting retained interest was $6 million and resulting loans
effectively owned were $33 million. The related gain on the 2009-A Amendment of $4 million is included in
vacation ownership and residential sales and services in the Company’s consolidated statements of income.
Although the notes effectively owned after the transfers were measured at fair value on the transfer date, they
require prospective accounting treatment as notes receivable and will be carried at the basis established at the date of
transfer and accrete interest over time to return to the historical cost basis. If the Company deems such amount to be
non-recoverable in the future, it will record a valuation allowance. During 2009, the Company recorded a valuation
allowance of $4 million. As of December 31, 2009, the value of the notes that the Company effectively owned from
the 2009-A Securitization, the 2009-B Securitization and the 2009-A Amendment was approximately $56 million,
which the Company classified as “Other assets” in its consolidated balance sheets.
At December 31, 2009, the aggregate outstanding principal balance of VOI notes receivable that has been
securitized was $529 million. The aggregate principal amount of those VOI notes receivables that were more than
90 days delinquent at December 31, 2009 was approximately $6 million.
Gross credit losses for all VOI notes receivable that have been securitized totaled $42 million, $31 million and
$23 million during 2009, 2008 and 2007, respectively.
The Company received aggregate cash proceeds of $21 million, $26 million and $33 million from the Retained
Interests during 2009, 2008 and 2007, respectively. The Company received aggregate servicing fees of $4 million,
$3 million and $4 million related to these VOI notes receivable during 2009, 2008 and 2007, respectively.
F-22
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)