New York, December 4, 2009- According to a presale report issued Dec. 1 by Standard & Poors, Starwood Vacation Ownership VOI Mortgage Corp. is coming to market with $166 million in vacation ownership interest loan-backed notes Series 2009-B. The deal is expected to close this week, and may have already done as this post goes live.
Standard & Poors assigned the bonds, which are due in 2028, a preliminary A rating. The bonds are expected to be one class and fixed-rate. The underwriters are Credit Suisse Securities (USA) LLC; J.P. Morgan Securities Inc.; Barclays Capital Inc.; Deutsche Bank Securities Inc.; and RBS Securities Inc. Standard & Poor’s Ratings Services expect that the series 2009-B transaction will include one class of fixed-rate notes.
The statement continues by saying:
The VOI loans included in the series 2009-B pool are all backed by fee-simple mortgages. The current annual selling price for one-week properties ranges from $7,900-$79,900 for annual VOIs and from $5,100-$54,900 for alternate-year VOIs. These prices may be affected by the resort location, size of the unit, and the selected season.
The originators sell fractional interests in residential units in vacation resorts. These interests entitle the owner to use a unit at a resort for a specified period, usually one week, on an annual or alternate-year basis. The units have one, two, or three bedrooms, some of which are lock-off units, which further increase usage flexibility. New owners receive a deed and an owner’s title insurance policy with obligations to pay the annual resort expenses or assessments, including maintenance, property tax, insurance, and management expenses. Owners pay the associated fees directly to the resort homeowners association, which oversees all administrative functions, including lockout remedies for unpaid fees. The average annual assessment for 2008 generally ranged from $321-$2,959, including property taxes.
Starwood’s hotel business emphasizes the global operation of hotels and resorts primarily in the luxury and upscale segment of the lodging industry. As a result, management continues to seek ways to upgrade and solidify its brand image across resorts. It has branded a number of existing resorts under the Sheraton Vacation Ownership flag, including properties in Orlando, Fla.; Scottsdale, Ariz.; Myrtle Beach, S.C.; and Avon, Colo. The company’s strategy is to continue to seek new development opportunities to accommodate consumer lifestyle tastes and demand with special efforts to develop VOI properties near existing Starwood sites and align services with guest demographics. SVO expects that these targeted efforts will yield both operating synergies and economies of scale along such areas as sales, personnel, and administration.
Over the past several years, SVO has added newly constructed Starwood Vacation Ownership properties: Westin Mission Hills Resort Villas, Westin Kierland Resort and Villas, Westin Ka’anapali Ocean Resort Villas, and Sheraton Steamboat Springs, all of which are located adjacent to existing Starwood Hotels. SVO believes that the upscale Westin brand standards and high historical obligor down payment percentages, combined with the high price points, should promote strong future performance for Westin obligor loans.
Sheraton’s Vistana Resort in Orlando, SVO’s flagship property, has been named three times on the Condé Nast Gold List of the 500 best places to stay in the world. The resorts included in the series 2009-B transaction all participate in Interval International’s (II’s) exchange program. II classifies these resorts as Premier Resorts, the highest rating available. In addition, the Starwood Vacation Network, the company’s internal exchange program, enables members to access other Sheraton and Westin Vacation Ownership resorts, as well as Starwood hotels and resorts.
SVO’s sales and marketing programs vary depending on the resort, but given each resort’s destination orientation, the company actively seeks to tailor services to client tastes. Its U.S. marketing programs principally focus on off-premise contacts, in-house contacts, and telemarketing. The company’s resort-based sales operations may also employ additional sales efforts, including preview programs, strategic alliances, affinity marketing, and database programs.
Underwriting And Collection Process
Like most of the vacation ownership industry, SVO did not conduct formal underwriting before July 2001. Instead of formal underwriting, SVO screened its prospects during the early stages of the marketing and sales process. In July 2001, SVO introduced new, formal underwriting policies and procedures to enhance overall loan performance. It now applies a credit evaluation score methodology (using FICO) to all credit files for purposes of the required down payment amount. SVO reports payment behavior each month to Experian, the credit-reporting bureau. The company actively pursues any delinquent loan collections internally, and places accounts that are delinquent beyond 120 days in a loss mitigation division that obtains payments and makes formal collection arrangements.
Timeshare Property Regimes
A VOI loan is typically an installment sale or mortgage loan with an original term that generally ranges from seven to 10 years and is secured by a right to use the property or by a deeded interest, as applicable. Historically, timeshares have been sold on a fixed-week, fixed-unit basis, which gives the timeshare owner the right to use a designated unit in a specified property for a defined time period in each year, in perpetuity.
You can read the entire statement, inclusive of various tables and further information, at the Standard & Poors Web site.