Starwood 2009 Annual Report Download - page 146

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At the time of each VOI notes receivable securitization and at the end of each financial reporting period, the
Company estimates the fair value of its Retained Interests using a discounted cash flow model. All assumptions used
in the models are reviewed and updated, if necessary, based on current trends and historical experience. The key
assumptions used in measuring the fair value associated with its note securitizations as of December 31, 2009 was as
follows: an average discount rate of 7.8%, an average expected annual prepayment rate including defaults of 15.8%
and an expected weighted average remaining life of prepayable notes receivable of 86 months.
The fair value of the Company’s Retained Interest as of December 31, 2009 and 2008 was $25 million and
$19 million with amortized cost basis of $22 million and $21 million, respectively. Temporary differences in the fair
value of the retained interests recorded in other comprehensive income totaled a $3 million gain for the year ended
December 31, 2009 and a $2 million loss for the year ended December 31, 2008. Total other-than-temporary
impairments related to credit losses recorded in loss on asset dispositions and impairments totaled $22 million,
$23 million and $3 million during 2009, 2008 and 2007, respectively.
The Company completed a sensitivity analysis on the net present value of the Retained Interests to measure the
change in value associated with independent changes in individual key variables. The methodology applied
unfavorable changes for the key variables of expected prepayment rates, discount rates and expected gross credit
losses as of December 31, 2009. The decreases in value of the Retained Interests that would result from various
independent changes in key variables are shown in the chart that follows (in millions). The factors may not move
independently of each other.
Annual prepayment rate:
100 basis points-dollars .................................................. $ 1.1
100 basis points-percentage ............................................... 4.5%
200 basis points-dollars .................................................. $ 2.2
200 basis points-percentage ............................................... 8.8%
Discount rate:
100 basis points-dollars .................................................. $ 0.5
100 basis points-percentage ............................................... 1.9%
200 basis points-dollars .................................................. $ 0.9
200 basis points-percentage ............................................... 3.8%
Gross annual rate of credit losses:
100 basis points-dollars .................................................. $ 5.0
100 basis points-percentage ............................................... 20.1%
200 basis points-dollars .................................................. $ 9.1
200 basis points-percentage ............................................... 36.5%
F-23
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)