Timeshare Financing Receivables

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Timeshare Financing Receivables

Note 5: Timeshare Financing Receivables

Timeshare financing receivables were as follows:

	September 30, 2019
($ in millions)	Securitized and Pledged			Unsecuritized(1)			Total
Timeshare financing receivables	$	795		$	523		$	1,318
Less: allowance for financing receivables losses		(60	)		(119	)		(179	)
	$	735		$	404		$	1,139

	December 31, 2018
($ in millions)	Securitized and Pledged			Unsecuritized(1)			Total
Timeshare financing receivables	$	660		$	632		$	1,292
Less: allowance for financing receivables losses		(43	)		(129	)		(172	)
	$	617		$	503		$	1,120

⁽¹⁾ Includes amounts used as collateral to secure a non-recourse revolving timeshare receivable credit facility ("Timeshare Facility") as well as amounts held as future collateral for upcoming securitization activities.

As of September 30, 2019, we had timeshare financing receivables with a carrying value of $24 million securing the Timeshare Facility in anticipation of future financing activities. As of December 31, 2018, the carrying value of our timeshare financing receivables securing the outstanding debt balance of our Timeshare Facility was $171 million. We record an estimate of variable consideration for estimated defaults as a reduction of revenue from VOI sales at the time revenue is recognized on a VOI sale.

In August 2019, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $21 million cash deposit that will be released upon future pledging of qualified collateral, and issued approximately $216 million of 2.34 percent notes, $50 million of 2.54 percent notes and $34 million of 2.84 percent notes, which have a stated maturity date of July 25, 2033.  The securitization transaction did not qualify as a sale and, accordingly, no gain or loss was recognized.  The transaction is considered a secured borrowing; therefore, the proceeds from the transaction are presented as non-recourse debt (collectively, the “Securitized Debt”).  The proceeds were primarily used to pay down the remaining borrowings on our Timeshare Facility and our Securitized Debt with a rate of 2.280%, due 2026 and general corporate operating expenses.  See Note 11: Debt and Non-recourse Debt for additional information.

Our timeshare financing receivables as of September 30, 2019 mature as follows:

($ in millions)	Securitized and Pledged			Unsecuritized			Total
Year
2019 (remaining)	$	22		$	22		$	44
2020		90			49			139
2021		94			50			144
2022		98			49			147
2023		101			50			151
Thereafter		390			303			693
		795			523			1,318
Less: allowance for financing receivables losses		(60	)		(119	)		(179	)
	$	735		$	404		$	1,139

We evaluate this portfolio collectively for purposes of estimating variable consideration, since we hold a large group of homogeneous timeshare financing receivables which are individually immaterial. We monitor the credit quality of our receivables on an ongoing basis. There are no significant concentrations of credit risk with any individual counterparty or groups of counterparties. We use a technique referred to as static pool analysis as the basis for determining our allowance for financing receivables losses on our timeshare financing receivables. For static pool analysis, we use certain key dimensions to stratify our portfolio, including FICO scores, equity percentage at the time of sale and certain other factors. The adequacy of the related allowance is determined by management through analysis of several factors, such as current economic conditions and industry trends, as well as the specific risk characteristics of the portfolio including assumed default rates, aging and historical write-offs of these receivables. The allowance is maintained at a level deemed adequate by management based on a periodic analysis of the mortgage portfolio.

We recognize interest income on our timeshare financing receivables as earned. The interest rate charged on the notes correlates to the risk profile of the customer at the time of purchase and the percentage of the purchase that is financed, among other factors. As of September 30, 2019, our timeshare financing receivables had interest rates ranging from 3.9 percent to 20.5 percent, a weighted-average interest rate of 12.43 percent, a weighted-average remaining term of 7.8 years and maturities through 2034.

Our gross timeshare financing receivables balances by FICO score were as follows:

	September 30,		December 31,
($ in millions)	2019		2018
FICO score
700+	$	802	$	790
600-699		289		280
<600		38		37
No score(1)		189		185
	$	1,318	$	1,292

⁽¹⁾ Timeshare financing receivables without a FICO score are primarily related to foreign borrowers.

We apply payments we receive for timeshare financing receivables, including those in non-accrual status, to amounts due in the following order: servicing fees; interest; principal; and late charges. Once a receivable is 91 days past due, we cease accruing interest and reverse the accrued interest recognized up to that point. We resume interest accrual for receivables for which we had previously ceased accruing interest once the receivable is less than 91 days past due. We fully reserve for a timeshare financing receivable in the month following the date that the receivable is 121 days past due and, subsequently, we write off the uncollectible balance against the reserve once the foreclosure process is complete and we receive the deed for the foreclosed unit.

As of September 30, 2019 and December 31, 2018, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $68 million and $69 million, respectively. The following tables detail an aged analysis of our gross timeshare financing receivables balance:

	September 30, 2019
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	783	$	449	$	1,232
31 - 90 days past due		7		11		18
91 - 120 days past due		3		5		8
121 days and greater past due		2		58		60
	$	795	$	523	$	1,318

	December 31, 2018
($ in millions)	Securitized and Pledged		Unsecuritized		Total
Current	$	648	$	556	$	1,204
31 - 90 days past due		8		11		19
91 - 120 days past due		3		3		6
121 days and greater past due		1		62		63
	$	660	$	632	$	1,292

The changes in our allowance for financing receivables losses were as follows:

	September 30, 2019
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2018	$	43		$	129		$	172
Write-offs		—			(53	)		(53	)
Securitizations		29			(29	)		—
Provision for financing receivables losses(1)		(12	)		72			60
Balance as of September 30, 2019	$	60		$	119		$	179

	September 30, 2018
($ in millions)	Securitized and Pledged			Unsecuritized			Total
Balance as of December 31, 2017	$	27		$	114		$	141
Write-offs		—			(22	)		(22	)
Securitization		30			(30	)		—
Provision for financing receivables losses(1)		(10	)		60			50
Balance as of September 30, 2018	$	47		$	122		$	169

⁽¹⁾ Includes incremental provision for financing receivables losses, net of activity related to the repurchase of defaulted and upgraded securitized timeshare financing receivables.