VACATION OWNERSHIP NOTES RECEIVABLE

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Vacation ownership notes receivable

6. VACATION OWNERSHIP NOTES RECEIVABLE

The following table shows the composition of our vacation ownership notes receivable balances, net of reserves.

	September 30, 2020						December 31, 2019
($ in millions)	Originated		Acquired		Total		Originated		Acquired		Total
Securitized	$	1,348	$	302	$	1,650	$	1,378	$	372	$	1,750
Non-securitized
Eligible for securitization(1)	52		2		54		155		10		165
Not eligible for securitization(1)	176		33		209		261		57		318
Subtotal	228		35		263		416		67		483
	$	1,576	$	337	$	1,913	$	1,794	$	439	$	2,233

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(1)Refer to Footnote 7 “Financial Instruments” for a discussion of eligibility of our vacation ownership notes receivable for securitization.

We reflect interest income associated with vacation ownership notes receivable in our Income Statements in the Financing revenues caption. The following table summarizes interest income associated with vacation ownership notes receivable.

	Three Months Ended				Nine Months Ended
($ in millions)	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Interest income associated with vacation ownership notes receivable — securitized	$	59	$	58	$	186	$	176
Interest income associated with vacation ownership notes receivable — non-securitized	4		11		13		25
Total interest income associated with vacation ownership notes receivable	$	63	$	69	$	199	$	201

COVID-19 Impact on Vacation Ownership Notes Receivable Reserves

We evaluated our vacation ownership notes receivable reserves in light of the COVID-19 pandemic, using the performance of our vacation ownership notes receivable in response to the 2008/2009 financial crisis as a reference point. Using this information, we increased our estimated default rates by approximately 50 percent for a 15-month period to align with the period over which we experienced increased defaults during the previous recessionary period. As a result, we increased our vacation ownership notes receivable reserves by $52 million in the first quarter of 2020. This was reflected as a $42 million reduction to Sale of vacation ownership products, a $10 million increase in Financing expenses, and a $15 million reduction in Cost of vacation ownership products on our Income Statement for the first three quarters of 2020.

Acquired Vacation Ownership Notes Receivable

As part of the ILG Acquisition, we acquired existing portfolios of vacation ownership notes receivable. At acquisition, we recorded these vacation ownership notes receivable at fair value. Upon adoption of ASU 2016-13 on January 1, 2020, we established a reserve for credit losses and a corresponding increase in the book value of the acquired vacation ownership notes receivable, resulting in no impact to the recorded balance. In addition, we established a noncredit discount of $2 million, which represents the difference between the amortized cost basis and the par value of our acquired vacation ownership notes receivable. The noncredit discount will be amortized to interest expense over the contractual life of the acquired vacation ownership notes receivable and is recorded as Financing expenses on our Income Statements.

The following table summarizes the activity related to our acquired vacation ownership notes receivable reserve.

	Acquired Vacation Ownership Notes Receivable Reserve
($ in millions)	Non-Securitized		Securitized		Total
Balance at December 31, 2019, as reported	$	—	$	—	$	—
Impact of adoption of ASU 2016-13	29		26		55
Opening Balance at January 1, 2020	29		26		55
Securitizations	(1)		1		—
Clean-up call	1		(1)		—
Write-offs	(16)		—		(16)
Recoveries	8		—		8
Increase in vacation ownership notes receivable reserve(1)	14		—		14
Balance at September 30, 2020	$	35	$	26	$	61

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(1)Increase in vacation ownership notes receivable reserve includes $10 million ($2 million non-securitized and $8 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic.

The following table shows future contractual principal payments, as well as interest rates, for our non-securitized and securitized acquired vacation ownership notes receivable at September 30, 2020.

	Acquired Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
2020, remaining	$	1	$	14	$	15
2021	4		41		45
2022	4		41		45
2023	4		40		44
2024	4		38		42
Thereafter	18		128		146
Balance at September 30, 2020	$	35	$	302	$	337
Weighted average stated interest rate	13.4%		13.5%		13.4%
Range of stated interest rates	3.0% to 17.9%		6.0% to 15.9%		3.0% to 17.9%

Originated Vacation Ownership Notes Receivable

Originated vacation ownership notes receivable represent vacation ownership notes receivable originated by Legacy-ILG subsequent to the Acquisition Date and all Legacy-MVW vacation ownership notes receivable. The following table shows future principal payments, net of reserves, as well as interest rates, for our originated non-securitized and securitized originated vacation ownership notes receivable at September 30, 2020.

	Originated Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
2020, remaining	$	10	$	34	$	44
2021	31		135		166
2022	26		138		164
2023	21		139		160
2024	19		148		167
Thereafter	121		754		875
Balance at September 30, 2020	$	228	$	1,348	$	1,576
Weighted average stated interest rate	12.3%		12.7%		12.6%
Range of stated interest rates	0.0% to 18.0%		0.0% to 17.5%		0.0% to 18.0%

For originated vacation ownership notes receivable, we record the difference between the vacation ownership note receivable and the variable consideration included in the transaction price for the sale of the related vacation ownership product as a reserve on our vacation ownership notes receivable.

The following table summarizes the activity related to our originated vacation ownership notes receivable reserve.

	Originated Vacation Ownership Notes Receivable Reserve
($ in millions)	Non-Securitized		Securitized		Total
Balance at December 31, 2019	$	90	$	114	$	204
Increase in vacation ownership notes receivable reserve(1)	49		48		97
Securitizations	(70)		70		—
Clean-up call	37		(37)		—
Write-offs	(27)		—		(27)
Defaulted vacation ownership notes receivable repurchase activity(2)	72		(72)		—
Balance at September 30, 2020	$	151	$	123	$	274

_________________________

(1)Increase in vacation ownership notes receivable reserve includes $42 million ($16 million non-securitized and $26 million securitized) attributable to the increased reserve as a result of the COVID-19 pandemic.

(2)Decrease in securitized vacation ownership notes receivable reserve and increase in non-securitized vacation ownership notes receivable reserve were attributable to the transfer of the reserve when we voluntarily repurchased defaulted securitized vacation ownership notes receivable.

Credit Quality of Vacation Ownership Notes Receivable

Legacy-MVW Vacation Ownership Notes Receivable

For both Legacy-MVW non-securitized and securitized vacation ownership notes receivable, we estimated average remaining default rates of 7.35 percent as of September 30, 2020, and 7.04 percent as of December 31, 2019. A 0.5 percentage point increase in the estimated default rate would have resulted in an increase in the related vacation ownership notes receivable reserve of $7 million as of September 30, 2020, and $8 million as of December 31, 2019.

The following table shows our recorded investment in non-accrual Legacy-MVW vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.

	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
Investment in vacation ownership notes receivable on non-accrual status at September 30, 2020	$	86	$	11	$	97
Investment in vacation ownership notes receivable on non-accrual status at December 31, 2019	$	43	$	11	$	54

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of September 30, 2020.

	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
31 – 90 days past due	$	8	$	27	$	35
91 – 150 days past due	5		12		17
Greater than 150 days past due	80		—		80
Total past due	93		39		132
Current	167		1,122		1,289
Total vacation ownership notes receivable	$	260	$	1,161	$	1,421

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-MVW vacation ownership notes receivable as of December 31, 2019.

	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
31 – 90 days past due	$	7	$	33	$	40
91 – 150 days past due	4		11		15
Greater than 150 days past due	39		—		39
Total past due	50		44		94
Current	222		1,254		1,476
Total vacation ownership notes receivable	$	272	$	1,298	$	1,570

The following table details the origination year of our Legacy-MVW vacation ownership notes receivable as of September 30, 2020.

	Legacy-MVW Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
Year of Origination
2020	$	84	$	90	$	174
2019	72		419		491
2018	40		278		318
2017	20		167		187
2016	10		78		88
2015 and Prior	34		129		163
	$	260	$	1,161	$	1,421

Legacy-ILG Vacation Ownership Notes Receivable

At September 30, 2020 and December 31, 2019, the weighted average FICO score within our consolidated Legacy-ILG vacation ownership notes receivable pools was 708 and 712, respectively, based upon the outstanding vacation ownership notes receivable balance at time of origination. The average estimated rate for all future defaults for our Legacy-ILG consolidated outstanding pool of vacation ownership notes receivable was 14.71 percent as of September 30, 2020 and 12.65 percent as of December 31, 2019. A 0.5 percentage point increase in the estimated default rate on the Legacy-ILG vacation ownership notes receivable would have resulted in an increase in the related vacation ownership notes receivable reserve of $3 million as of September 30, 2020, and $2 million as of December 31, 2019.

The following table shows our recorded investment in non-accrual Legacy-ILG vacation ownership notes receivable, which are vacation ownership notes receivable that are 90 days or more past due.

	Legacy-ILG Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
Investment in vacation ownership notes receivable on non-accrual status at September 30, 2020	$	96	$	12	$	108
Investment in vacation ownership notes receivable on non-accrual status at December 31, 2019	$	40	$	9	$	49

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG vacation ownership notes receivable as of September 30, 2020.

	Legacy-ILG Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
31 – 90 days past due	$	7	$	22	$	29
91 – 120 days past due	3		7		10
Greater than 120 days past due	93		5		98
Total past due	103		34		137
Current	85		606		691
Total vacation ownership notes receivable	$	188	$	640	$	828

The following table shows the aging of the recorded investment in principal, before reserves, in Legacy-ILG vacation ownership notes receivable as of December 31, 2019.

	Legacy-ILG Vacation Ownership Notes Receivable
($ in millions)	Non-Securitized		Securitized		Total
31 – 90 days past due	$	11	$	18	$	29
91 – 120 days past due	3		6		9
Greater than 120 days past due	37		3		40
Total past due	51		27		78
Current	250		539		789
Total vacation ownership notes receivable	$	301	$	566	$	867

The following tables show the Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score, before reserves. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

	Acquired Vacation Ownership Notes Receivable as of September 30, 2020
($ in millions)	700 +		600 - 699		< 600		No Score		Total
Westin	$	91	$	52	$	4	$	11	$	158
Sheraton	87		77		14		33		211
Hyatt	13		9		1		1		24
Other	2		1		—		2		5
	$	193	$	139	$	19	$	47	$	398

	Acquired Vacation Ownership Notes Receivable as of December 31, 2019
($ in millions)	700 +		600 - 699		< 600		No Score		Total
Westin	$	103	$	57	$	4	$	13	$	177
Sheraton	95		83		15		37		230
Hyatt	15		10		1		—		26
Other	3		1		—		2		6
	$	216	$	151	$	20	$	52	$	439

The following table details the origination year of our Legacy-ILG acquired vacation ownership notes receivable by brand and FICO score as of September 30, 2020. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

	Acquired Vacation Ownership Notes Receivable - Westin
($ in millions)	2020		2019		2018		2017		2016		2015 & Prior		Total
700 +	$	—	$	—	$	25	$	25	$	15	$	26	$	91
600 - 699	—		—		12		14		10		16		52
< 600	—		—		2		1		—		1		4
No Score	—		—		3		2		2		4		11
	$	—	$	—	$	42	$	42	$	27	$	47	$	158

	Acquired Vacation Ownership Notes Receivable - Sheraton
($ in millions)	2020		2019		2018		2017		2016		2015 & Prior		Total
700 +	$	—	$	—	$	25	$	24	$	15	$	23	$	87
600 - 699	—		—		20		20		13		24		77
< 600	—		—		8		3		1		2		14
No Score	—		—		9		9		6		9		33
	$	—	$	—	$	62	$	56	$	35	$	58	$	211

	Acquired Vacation Ownership Notes Receivable - Hyatt and Other
($ in millions)	2020		2019		2018		2017		2016		2015 & Prior		Total
700 +	$	—	$	—	$	3	$	3	$	3	$	6	$	15
600 - 699	—		—		2		2		2		4		10
< 600	—		—		—		—		—		1		1
No Score	—		—		—		—		—		3		3
	$	—	$	—	$	5	$	5	$	5	$	14	$	29

The following tables show the Legacy-ILG originated vacation ownership notes receivable by brand and FICO score, before reserves. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

	Originated Vacation Ownership Notes Receivable as of September 30, 2020
($ in millions)	700 +		600 - 699		< 600		No Score		Total
Westin	$	105	$	51	$	5	$	19	$	180
Sheraton	101		69		16		41		227
Hyatt	15		7		1		—		23
	$	221	$	127	$	22	$	60	$	430

	Originated Vacation Ownership Notes Receivable as of December 31, 2019
($ in millions)	700 +		600 - 699		< 600		No Score		Total
Westin	$	122	$	46	$	5	$	25	$	198
Sheraton	97		61		13		37		208
Hyatt	16		6		—		—		22
	$	235	$	113	$	18	$	62	$	428

The following tables detail the origination year of our Legacy-ILG originated vacation ownership notes receivable by brand and FICO score as of September 30, 2020. Vacation ownership notes receivable with no FICO score primarily relate to non-U.S. resident borrowers.

	Originated Vacation Ownership Notes Receivable - Westin
($ in millions)	2020		2019		2018		2017		2016		2015 & Prior		Total
700 +	$	24	$	66	$	15	$	—	$	—	$	—	$	105
600 - 699	10		33		8		—		—		—		51
< 600	2		3		—		—		—		—		5
No Score	6		11		2		—		—		—		19
	$	42	$	113	$	25	$	—	$	—	$	—	$	180

	Originated Vacation Ownership Notes Receivable - Sheraton
($ in millions)	2020		2019		2018		2017		2016		2015 & Prior		Total
700 +	$	23	$	61	$	17	$	—	$	—	$	—	$	101
600 - 699	15		42		12		—		—		—		69
< 600	4		10		2		—		—		—		16
No Score	9		26		6		—		—		—		41
	$	51	$	139	$	37	$	—	$	—	$	—	$	227

	Originated Vacation Ownership Notes Receivable - Hyatt
($ in millions)	2020		2019		2018		2017		2016		2015 & Prior		Total
700 +	$	3	$	10	$	2	$	—	$	—	$	—	$	15
600 - 699	1		4		2		—		—		—		7
< 600	1		—		—		—		—		—		1
No Score	—		—		—		—		—		—		—
	$	5	$	14	$	4	$	—	$	—	$	—	$	23