Starwood 2011 Annual Report Download - page 139

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
option, subject to certain limitations, to repurchase or replace VOI notes receivable, that are in default, at their
outstanding principal amounts. Such activity totaled $31 million and $38 million during 2011 and 2010,
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 holds the risk of potential loss (or
gain) as the last to be paid out by proceeds of the VIEs under the terms of the agreements. As such, the Company
holds both the power to direct the activities of the VIEs and obligation to absorb the losses (or benefits) from the
VIEs.
The securitization agreements are without recourse to the Company, except for breaches of representations
and warranties. Based on the right of the Company to fund defaults at its option, subject to certain limitations, it
intends to do so until the debt is extinguished to maintain the credit rating of the underlying notes.
Upon transfer of vacation ownership notes receivable to the VIEs, the receivables and certain cash flows
derived from them become restricted for use in meeting obligations to the VIE creditors. The VIEs utilize trusts
which have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted
cash. The Company’s interests in trust assets are subordinate to the interests of third-party investors and, as such,
may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the
investors in the trusts’ debt (see Note 16). The Company is contractually obligated to receive the excess cash
flows (spread between the collections on the notes and third party obligations defined in the securitization
agreements) from the VIEs. Such activity totaled $44 million and $43 million during 2011 and 2010,
respectively, and is classified in cash and cash equivalents.
During the year ended December 31, 2011, the Company completed the 2011 securitization of
approximately $210 million of vacation ownership notes receivable. The securitization transaction did not qualify
as a sale for accounting purposes and, accordingly, no gain or loss was recognized. Of the $210 million
securitized in the 2011-A transaction, $200 million was previously unsecuritized and approximately $10 million
had previously been securitized in the 2003 securitization which was terminated in connection with the 2011
securitization. The 2003 securitization was terminated, including pay-down of all outstanding principal and
interest due. The net cash proceeds from the securitization, after termination of the 2003 securitization and
associated deal costs, were approximately $177 million.
During the year ended December 31, 2010, the Company completed the 2010 securitization of
approximately $300 million of vacation ownership notes receivable. The securitization transaction did not qualify
as a sale for accounting purposes and, accordingly, no gain or loss was recognized. Approximately $93 million of
proceeds from this transaction were used to terminate the securitization completed in June 2009 by repaying the
outstanding principal and interest on the securitized debt. In connection with the termination, a charge of
$5 million was recorded to interest expense, relating to the settlement of a balance guarantee interest rate swap
and the write-off of deferred financing costs. The net cash proceeds from the securitization after termination of
the 2009 securitization and associated deal costs were approximately $180 million.
See Note 10 for disclosures and amounts related to the securitized vacation ownership notes receivable
consolidated on the Company’s balance sheets as of December 31, 2011 and 2010.
Prior to the adoption of ASU 2009-16 and 2009-17, the Company completed securitizations of its VOI notes
receivables, which qualified for sales treatment. Retained Interests cash flows were 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. 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 during 2009, which are included in vacation ownership and residential sales
and services in the Company’s consolidated statements of income.
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