VARIABLE INTEREST ENTITIES

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

VARIABLE INTEREST ENTITIES

17. VARIABLE INTEREST ENTITIES

Variable Interest Entities Related to Our Vacation Ownership Notes Receivable Securitizations

We periodically securitize, without recourse, through bankruptcy remote special purpose entities, notes receivable originated in connection with the sale of vacation ownership products. These vacation ownership notes receivable securitizations provide funding for us and transfer the economic risks and substantially all the benefits of the consumer loans we originate to third parties. In a vacation ownership notes receivable securitization, various classes of debt securities issued by a special purpose entity are generally collateralized by a single tranche of transferred assets, which consist of vacation ownership notes receivable. With each vacation ownership notes receivable securitization, we may retain a portion of the securities, subordinated tranches, interest-only strips, subordinated interests in accrued interest and fees on the securitized vacation ownership notes receivable or, in some cases, overcollateralization and cash reserve accounts.

We created these bankruptcy remote special purpose entities to serve as a mechanism for holding assets and related liabilities, and the entities have no equity investment at risk, making them variable interest entities. We continue to service the vacation ownership notes receivable, transfer all proceeds collected to these special purpose entities, and retain rights to receive benefits that are potentially significant to the entities. Accordingly, we concluded that we are the entities’ primary beneficiary and, therefore, consolidate them. There is no noncontrolling interest balance related to these entities and the creditors of these entities do not have general recourse to us.

As part of the ILG Acquisition, we acquired the variable interests in the entities associated with ILG’s outstanding vacation ownership notes receivable securitization transactions. As these vacation ownership notes receivable securitizations are similar in nature to the Legacy-MVW vacation ownership notes receivable securitizations they have been aggregated for disclosure purposes. 

The following table shows consolidated assets, which are collateral for the obligations of these variable interest entities, and consolidated liabilities included on our Balance Sheet at September 30, 2019:

($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Consolidated Assets
Vacation ownership notes receivable, net of reserves	$	1,525	$	61	$	1,586
Interest receivable	11		1		12
Restricted cash	54		1		55
Total	$	1,590	$	63	$	1,653
Consolidated Liabilities
Interest payable	$	2	$	—	$	2
Debt	1,624		56		1,680
Total	$	1,626	$	56	$	1,682

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the third quarter of 2019:

($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	57	$	1	$	58
Interest expense to investors	$	11	$	1	$	12
Debt issuance cost amortization	$	2	$	—	$	2
Administrative expenses	$	—	$	—	$	—

The following table shows the interest income and expense recognized as a result of our involvement with these variable interest entities during the first three quarters of 2019:

($ in millions)	Vacation Ownership Notes Receivable Securitizations		Warehouse Credit Facility		Total
Interest income	$	164	$	12	$	176
Interest expense to investors	$	37	$	4	$	41
Debt issuance cost amortization	$	4	$	1	$	5
Administrative expenses	$	1	$	—	$	1

The following table shows cash flows between us and the vacation ownership notes receivable securitization variable interest entities:

	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Cash Inflows
Net proceeds from vacation ownership notes receivable securitizations	$	445		$	419
Principal receipts	355			227
Interest receipts	156			92
Reserve release	107			109
Total	1,063			847
Cash Outflows
Principal to investors	(379		)	(208		)
Voluntary repurchases of defaulted vacation ownership notes receivable	(35		)	(34		)
Voluntary clean-up call	(19		)	(22		)
Interest to investors	(36		)	(19		)
Funding of restricted cash	(93		)	(117		)
Total	(562		)	(400		)
Net Cash Flows	$	501		$	447

Under the terms of our vacation ownership notes receivable securitizations, we have the right to substitute loans for, or repurchase, defaulted loans at our option, subject to certain limitations. Our maximum exposure to loss relating to the special purpose entities that purchase, sell and own these vacation ownership notes receivable is the overcollateralization amount (the difference between the loan collateral balance and the balance on the outstanding vacation ownership notes receivable), plus cash reserves and any residual interest in future cash flows from collateral.

The following table shows cash flows between us and the Warehouse Credit Facility variable interest entity:

	Nine Months Ended
($ in millions)	September 30, 2019			September 30, 2018
Cash Inflows
Proceeds from vacation ownership notes receivable securitizations	$	181		$	—
Principal receipts	14			—
Interest receipts	13			—
Reserve release	1			—
Total	209			—
Cash Outflows
Principal to investors	(12		)	—
Repayment of Warehouse Credit Facility	(228		)	—
Interest to investors	(4		)	(1		)
Funding of restricted cash	(1		)	—
Total	(245		)	(1		)
Net Cash Flows	$	(36	)	$	(1	)

Other Variable Interest Entities

We have a commitment to purchase an operating property located in San Francisco, California, that we currently manage as Marriott Vacation Club Pulse, San Francisco. Refer to Footnote 11 “Contingencies and Commitments” for additional information on the commitment. We are required to purchase the operating property from the third party developer unless the developer has sold the property to another party. The operating property is held by a variable interest entity for which we are not the primary beneficiary as we cannot prevent the variable interest entity from selling the operating property at a higher price. Accordingly, we have not consolidated the variable interest entity. As of September 30, 2019, our Balance Sheet reflected $2 million in Accounts Receivable, including a note receivable of less than $1 million, and $1 million in Accrued liabilities, relating to our involvement with this variable interest entity. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entity is $1 million as of September 30, 2019.

We have a commitment to purchase an operating property located in New York, New York, that we currently manage as Marriott Vacation Club Pulse, New York City. Refer to Footnote 11 “Contingencies and Commitments” for additional information on the commitment. We are required to purchase the completed property from the third party developer unless the developer has sold the property to another party. The property is held by a variable interest entity for which we are not the primary beneficiary as we cannot prevent the variable interest entity from selling the property at a higher price. Accordingly, we have not consolidated the variable interest entity. As of September 30, 2019, our Balance Sheet reflected $8 million in Property and equipment related to a finance lease and leasehold improvements, $1 million in Accrued liabilities and $7 million in Debt related to the finance lease liability for ancillary and operations space we lease from the variable interest entity. In addition, a note receivable of less than $1 million is included in the Accounts receivable line on the Balance Sheet as of September 30, 2019. We believe that our maximum exposure to loss as a result of our involvement with this variable interest entity is less than $1 million as of September 30, 2019.

Deferred Compensation Plan

We consolidate the liabilities of the Marriott Vacations Worldwide Deferred Compensation Plan and the related assets, which consist of the COLI policies held in the rabbi trust. The rabbi trust is considered a variable interest entity. We are considered the primary beneficiary of the rabbi trust because we direct the activities of the trust and are the beneficiary of the trust. At September 30, 2019, the value of the assets held in the rabbi trust was $36 million, which is included in the Other line within assets on our Balance Sheets.