Starwood 2012 Annual Report Download - page 181

STARWOOD HOTELS & RESORTS WORLDWIDE, INC.
NOTES TO FINANCIAL STATEMENTS
For the vacation ownership and residential segment, we record an estimate of expected uncollectibility on
our VOI notes receivable as a reduction of revenue at the time we recognize profit on a timeshare sale. We hold
large amounts of homogeneous VOI notes receivable and therefore, assess uncollectibility based on pools of
receivables. In estimating loss reserves, we use a technique referred to as static pool analysis, which tracks
uncollectible notes for each year’s sales over the life of the respective notes and projects an estimated default rate
that is used in the determination of our loan loss reserve requirements. As of December 31, 2012, the average
estimated default rate for our pools of receivables was 9.7%.
The activity and balances for our loan loss reserve are as follows (in millions):
Securitized Unsecuritized Total
Balance at December 31, 2009 ............................ $— $94 $ 94
Provisions for loan losses .............................. 14 32 46
Write-offs .......................................... — (52) (52)
Adoption of ASU No. 2009-17 .......................... 77 (4) 73
Other .............................................. (9) 9 —
Balance at December 31, 2010 ............................ 82 79 161
Provisions for loan losses .............................. 2 27 29
Write-offs .......................................... — (54) (54)
Other .............................................. (4) 4 —
Balance at December 31, 2011 ............................ 80 56 136
Provisions for loan losses .............................. — 26 26
Write-offs .......................................... — (41) (41)
Other .............................................. (7) 7 —
Balance at December 31, 2012 ............................ $73 $48 $121
We use the origination of the notes by brand (Sheraton, Westin, and Other) as the primary credit quality
indicator to calculate the loan loss reserve for the vacation ownership notes, as we believe there is a relationship
between the default behavior of borrowers and the brand associated with the vacation ownership property they
have acquired. In addition to quantitatively calculating the loan loss reserve based on our static pool analysis, we
supplement the process by evaluating certain qualitative data, including the aging of the respective receivables,
current default trends by brand and origination year, and the FICO scores of the buyers.
Given the significance of our pools of VOI notes receivable, a change in the projected default rate can have
a significant impact to our loan loss reserve requirements, with a 0.1% change estimated to have an impact of
approximately $4 million.
We consider a VOI note receivable delinquent when it is more than 30 days outstanding. All delinquent
loans are placed on nonaccrual status, and we do not resume interest accrual until payment is made. We consider
loans to be in default upon reaching 120 days outstanding, at which point, we generally commence the
repossession process. Uncollectible VOI notes receivable are charged off when title to the unit is returned to us.
We generally do not modify vacation ownership notes that become delinquent or upon default.
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