Starwood 2012 Annual Report Download - page 179

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
this determination, we evaluated the activities that significantly impact the economics of the VIEs, including the
management of the securitized notes receivable and any related non-performing loans. We are the servicer of the
securitized mortgage receivables. We also have the option, subject to certain limitations, to repurchase or replace
VOI notes receivable, that are in default, at their outstanding principal amounts. Such activity totaled $28 million
and $31 million during 2012 and 2011, respectively. We have been able to resell the VOIs underlying the VOI
notes repurchased or replaced under these provisions without incurring significant losses. We hold 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, we hold 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 us, except for breaches of representations and
warranties. We have the right to fund defaults at our option, subject to certain limitations, and we intend to do so
until the debt is extinguished to maintain the credit rating of the underlying notes.
Upon transfer of VOI 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. Our
interest in trust assets are subordinate to the interests of third-party investors and, as such, may not be realized by
us if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt (see Note
16). We are 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
$49 million, $44 million and $43 million during 2012, 2011, and 2010, respectively, and is classified in cash and
cash equivalents.
During the year ended December 31, 2012, we completed a securitization of approximately $174 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 and the proceeds are presented as debt. Of the
$174 million securitized in 2012, $155 million was previously unsecuritized and approximately $19 million
related to the 2005 securitization for which the termination was prefunded. The net cash proceeds from the
securitization, after the amount pre-funded for the future termination of the 2005 securitization and associated
deal costs, were approximately $140 million. The pre-funded amount of $18 million is included in restricted cash
until the 2005 securitization is terminated, which is expected to occur in 2013.
During the year ended December 31, 2011, we completed a 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 and the proceeds are presented as debt. Of the
$210 million securitized in 2011, $200 million was previously unsecuritized and approximately $10 million came
from the terminated 2003 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, we completed a 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
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