Timeshare Financing Receivables

9 Months Ended

Sep. 30, 2020

Receivables [Abstract]

Timeshare Financing Receivables

Note 6: Timeshare Financing Receivables

Timeshare financing receivables were as follows:

	September 30, 2020
($ in millions)	Securitized			Unsecuritized(1)			Total
Timeshare financing receivables	$	879		$	350		$	1,229
Less: allowance for financing receivables losses		(70	)		(147	)		(217	)
	$	809		$	203		$	1,012

	December 31, 2019
($ in millions)	Securitized			Unsecuritized(1)			Total
Timeshare financing receivables	$	758		$	582		$	1,340
Less: allowance for financing receivables losses		(54	)		(130	)		(184	)
	$	704		$	452		$	1,156

⁽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 securitization activities.

As of September 30, 2020, we had timeshare financing receivables with a carrying value of $19 million securing the Timeshare Facility in anticipation of future financing activities. As of December 31, 2019, we had no timeshare receivables pledged to the Timeshare Facility. 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. We record the difference between the timeshare financing receivable and the variable consideration included in the transaction price for the sale of the related VOI as an allowance for financing receivables and record the receivable net of the allowance. During the nine months ended September 30, 2020, we recorded an adjustment to our estimate of variable consideration of $57 million, which includes a $23 million revenue reduction related to changes in estimates primarily driven by economic factors surrounding the COVID-19 pandemic.

In June 2020, we completed a securitization of $300 million of gross timeshare financing receivables, which included a $15 million cash deposit that was subsequently released during the third quarter of 2020 upon pledging of qualified collateral, and issued approximately $186 million of 2.74 percent notes, $66 million of 4.22 percent notes and $48 million of 6.42 percent notes, which have a stated maturity date of February 25, 2039. 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 general corporate operating expenses. See Note 11: Debt and Non-recourse Debt for additional information.

Our timeshare financing receivables as of September 30, 2020 mature as follows:

($ in millions)	Securitized			Unsecuritized			Total
Year
2020 (remaining)	$	25		$	9		$	34
2021		103			32			135
2022		107			33			140
2023		110			35			145
2024		113			36			149
Thereafter		421			205			626
		879			350			1,229
Less: allowance for financing receivables losses		(70	)		(147	)		(217	)
	$	809		$	203		$	1,012

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 estimating expected defaults and 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. As of September 30, 2020 and December 31, 2019, we had interest receivable outstanding of $8 million and $9 million, respectively, included in our condensed consolidated balance sheets. 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, 2020, our timeshare financing receivables had interest rates ranging from 3.90 percent to 20.50 percent, a weighted-average interest rate of 12.60 percent, a weighted-average remaining term of 7.6 years and maturities through 2035.

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

	September 30,		December 31,
($ in millions)	2020		2019
FICO score
700+	$	669	$	818
600-699		291		292
<600		51		39
No score(1)		218		191
	$	1,229	$	1,340

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

The following table details the origination year of our gross timeshare financing receivables by average FICO score as of September 30, 2020:

($ in millions)	2020		2019		2018		2017		2016		Prior		Total
FICO score
700+	$	86	$	209	$	142	$	91	$	61	$	80	$	669
600-699		40		91		62		39		23		36		291
<600		7		16		11		6		4		7		51
No score(1)		34		67		40		27		18		32		218
	$	167	$	383	$	255	$	163	$	106	$	155	$	1,229

⁽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, 2020 and December 31, 2019, we had ceased accruing interest on timeshare financing receivables with an aggregate principal balance of $117 million and $74 million, respectively. The following tables detail an aged analysis of our gross timeshare receivables balance:

	September 30, 2020
($ in millions)	Securitized		Unsecuritized		Total
Current	$	858	$	230	$	1,088
31 - 90 days past due		12		12		24
91 - 120 days past due		5		3		8
121 days and greater past due		4		105		109
	$	879	$	350	$	1,229

	December 31, 2019
($ in millions)	Securitized		Unsecuritized		Total
Current	$	743	$	502	$	1,245
31 - 90 days past due		9		12		21
91 - 120 days past due		3		4		7
121 days and greater past due		3		64		67
	$	758	$	582	$	1,340

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

	September 30, 2020
($ in millions)	Securitized			Unsecuritized			Total
Balance as of December 31, 2019	$	54		$	130		$	184
Provision for financing receivables losses(1)		(17	)		74			57
Write-offs		—			(24	)		(24	)
Securitization		33			(33	)		—
Balance as of September 30, 2020	$	70		$	147		$	217

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

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