Starwood 2009 Annual Report Download - page 167

At December 31, 2009, the Company has approximately $81 million of investments associated with 18 VIEs,
equity investments of $11 million associated with one VIE, and a loan balance of $5 million associated with one
VIE. As the Company is not obligated to fund future cash contributions under these agreements, the maximum loss
equals the carrying value. In addition, the Company has not contributed amounts to the VIEs in excess of their
contractual obligations.
At December 31, 2008, the Company had approximately $66 million of investments associated with 19 VIEs,
equity investments of $10 million associated with one VIE and loan balances of $5 million associated with one VIE.
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 totaled $28 million at December 31, 2009. The Company evaluates these loans for
impairment, and at December 31, 2009, believes these loans are collectible. Unfunded loan commitments
aggregating $59 million were outstanding at December 31, 2009, $1 million of which is expected to be funded
in 2010 and in total. These loans typically are secured by pledges of project ownership interests and/or mortgages on
the projects. The Company also has $78 million of equity and other potential contributions associated with managed
or joint venture properties, $41 million of which is expected to be funded in 2010.
During 2004, the Company entered into a long-term management contract to manage the Westin Boston,
Seaport Hotel in Boston, Massachusetts, which opened in June 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 which was capped at
$40 million, a debt service guarantee during the term of the senior debt, which was limited to the interest expense on
the amounts drawn under such debt and principal amortization and a completion guarantee for this project. In
January 2007 this hotel was sold and the senior debt was repaid in full. In addition, the $28 million in mezzanine
loans and other investments, together with accrued interest, was repaid in full. In accordance with the management
agreement, the sale of the hotel also resulted in the payment of a fee to the Company of approximately $18 million,
which is included in management fees, franchise fees and other income in the consolidated statement of income for
the year ended December 31, 2007. The Company continues to manage this hotel subject to the pre-existing
management agreement.
Surety bonds issued on behalf of the Company at December 31, 2009 totaled $21 million, the majority of
which were required by state or local governments relating to the Company’s vacation ownership operations and by
its insurers to secure large deductible insurance programs.
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. At December 31, 2009, excluding the Le Méridien management agreement
mentioned below, the Company had three management contracts with performance guarantees with possible cash
outlays of up to $68 million, $53 million of which, if required, would be funded over several years and would be
largely offset by management fees received under these contracts. Many of the performance tests are multi-year
tests, are tied to the results of a competitive set of hotels, and have exclusions for force majeure and acts of war and
terrorism. The Company does not anticipate any significant funding under these performance guarantees in 2010. In
connection with the acquisition of the Le Méridien brand in November 2005, the Company assumed the obligation
to guarantee certain performance levels at one Le Méridien managed hotel for the periods 2007 through 2013. This
guarantee is uncapped. However, the Company has estimated its exposure under this guarantee and does not
anticipate that payments made under the guarantee will be significant in any single year. The estimated fair present
value of this guarantee of $8 million is reflected in other liabilities in the accompanying consolidated balance sheet
at December 31, 2009 and 2008. The Company does not anticipate losing a significant number of management or
franchise contracts in 2010.
F-44
STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS — (Continued)