Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates, currency exchange rates, and debt prices. We manage our exposure to these risks by monitoring available financing alternatives, through pricing policies that may take into account currency exchange rates, and by entering into derivative arrangements.
We are exposed to interest rate risk through borrowings on our Warehouse Credit Facility and our Corporate Credit Facility, which includes our Revolving Corporate Credit Facility and our Term Loan, as these facilities bear interest at variable rates. All other interest bearing debt, including securitized debt, incurs interest at fixed rates. Changes in interest rates also impact the fair value of our fixed-rate vacation ownership notes receivable and our fixed-rate debt.
As of December 31, 2022, approximately $784 million of our gross aggregate consolidated indebtedness (our Term Loan) was indexed to the USD London Interbank Offered Rate (“LIBOR”) and we were party to $550 million of derivative instruments indexed to LIBOR. The U.K. authority that regulates LIBOR announced that it will no longer permit new LIBOR contracts after December 31, 2021, and will not compel banks to submit rates for the calculation of LIBOR after June 2023. We intend to amend our Term Loan and derivative instruments to reference an alternative benchmark rate prior to the cessation of LIBOR. The use of an alternative benchmark rate could cause our interest expense to increase, which could adversely affect our financial condition, operating results and cash flows.
The following table sets forth the scheduled maturities and the total fair value as of year-end 2022 for our financial instruments that are impacted by market risks:
($ in millions) Average
Interest
Rate Maturities by Period
2023 2024 2025 2026 2027 Thereafter Total Carrying Value Total
Fair
Value
Assets – Maturities represent expected principal receipts; fair values represent assets
Vacation ownership notes receivable — non-securitized 12.6% $ 52 $ 38 $ 35 $ 33 $ 32 $ 216 $ 406 $ 408
Vacation ownership notes receivable — securitized 13.2% $ 171 $ 175 $ 177 $ 181 $ 180 $ 908 $ 1,792 $ 1,837
Liabilities – Maturities represent expected principal payments; fair values represent liabilities
Securitized debt 3.5% $ (185) $ (189) $ (328) $ (186) $ (184) $ (889) $ (1,961) $ (1,828)
Senior notes
2025 Notes 6.1% $ (250) $ — $ — $ — $ — $ — $ (250) $ (258)
2028 Notes 4.8% $ — $ — $ — $ — $ — $ (350) $ (350) $ (307)
2029 Notes 4.5% $ — $ — $ — $ — $ — $ (500) $ (500) $ (417)
Term Loan 6.1% $ — $ — $ (784) $ — $ — $ — $ (784) $ (775)
2026 Convertible Notes —% $ — $ — $ — $ (575) $ — $ — $ (575) $ (560)
2027 Convertible Notes 3.3% $ — $ — $ — $ — $ (575) $ — $ (575) $ (568)
Non-interest bearing note payable —% $ (6) $ (4) $ — $ — $ — $ — $ (10) $ (10)
We are exposed to currency exchange rate risk through investments in foreign subsidiaries that transact business in a currency other than the U.S. dollar and through the revaluation of assets and liabilities denominated in a currency other than the functional currency.
We use derivative instruments as part of our overall strategy to manage our exposure to market risks associated with fluctuations in interest rates and currency exchange rates. As a matter of policy, we only enter into transactions that we believe will be highly effective at offsetting the underlying risk and we do not use derivatives for trading or speculative purposes. However, we cannot assure you that these transactions will be as effective as we anticipate.
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