Starwood 2011 Annual Report Download - page 80

Risks Relating to Debt Financing
Our Debt Service Obligations May Adversely Affect our Cash Flow. As a result of our debt obligations, we
are subject to: (i) the risk that cash flow from operations will be insufficient to meet required payments of
principal and interest, (ii) restrictive covenants, including covenants relating to certain financial ratios, and
(iii) interest rate risk. Although we anticipate that we will be able to repay or refinance our existing indebtedness
and any other indebtedness when it matures, there can be no assurance that we will be able to do so or that the
terms of such refinancing will be favorable. Our leverage may have important consequences including the
following: (i) our ability to obtain additional financing for acquisitions, working capital, capital expenditures or
other purposes, if necessary, may be impaired or such financing may not be available on terms favorable to us
and (ii) a substantial decrease in operating cash flow, EBITDA (as defined in our credit agreements) or a
substantial increase in our expenses could make it difficult for us to meet our debt service requirements and
restrictive covenants and force us to sell assets and/or modify our operations.
We Have Little Control Over the Availability of Funds Needed to Fund New Investments and Maintain
Existing Hotels. In order to fund new hotel investments, as well as refurbish and improve existing hotels, both
we and current and potential hotel owners must have access to capital. The availability of funds for new
investments and maintenance of existing hotels depends in large measure on capital markets and liquidity factors
over which we have little control. Current and prospective hotel owners may find hotel financing expensive and
difficult to obtain. Delays, increased costs and other impediments to restructuring such projects may affect our
ability to realize fees, recover loans and guarantee advances, or realize equity investments from such projects.
Our ability to recover loans and guarantee advances from hotel operations or from owners through the proceeds
of hotel sales, refinancing of debt or otherwise may also affect our ability to raise new capital. In addition,
downgrades of our public debt ratings by rating agencies could increase our cost of capital. A breach of a
covenant could result in an event of default that, if not cured or waived, could result in an acceleration of all or a
substantial portion of our debt. For a more detailed description of the covenants imposed by our debt obligations,
see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity
and Capital Resources – Cash Used for Financing Activities in this Annual Report.
Volatility in the Credit Markets Will Continue to Adversely Impact Our Ability to Sell the Loans That Our
Vacation Ownership Business Generates. Our vacation ownership business provides financing to purchasers of
our vacation ownership units, and we attempt to sell interests in those loans in the securities markets. Volatility in
the credit markets may impact the timing and volume of the timeshare loans that we are able to sell. Although we
expect to realize the economic value of our vacation ownership note portfolio even if future note sales are
temporarily or indefinitely delayed, such delays may result in either increased borrowings to provide capital to
replace anticipated proceeds from such sales or reduced spending in order to maintain our leverage and return
targets.
Risks Relating to So-Called Acts of God, Terrorist Activity and War
Our financial and operating performance may be adversely affected by so-called acts of God, such as natural
disasters, in locations where we own and/or operate significant properties and areas of the world from which we
draw a large number of customers. Similarly, wars (including the potential for war), terrorist activity (including
threats of terrorist activity), political unrest and other forms of civil strife and geopolitical uncertainty have
caused in the past, and may cause in the future, our results to differ materially from anticipated results. In 2011,
our hotels in Syria, Tunisia, Libya and Egypt experienced reduced bookings as a result of the political climate in
these countries. If these conditions do not improve, our financial results could be negatively impacted.
Risks Related to Pandemic Diseases
Our business could be materially and adversely affected by the effect of a pandemic disease on the travel
industry. For example, the past outbreaks of SARS and avian flu had a severe impact on the travel industry, and
the recent outbreak of swine flu in Mexico had a similar impact. A prolonged recurrence of SARS, avian flu,
swine flu or another pandemic disease also may result in health or other government authorities imposing
restrictions on travel. Any of these events could result in a significant drop in demand for our hotel and vacation
ownership businesses and adversely affect our financial condition and results of operations.
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