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.
We manage the interest rate risk on our corporate debt through the use of a combination of fixed-rate debt and interest rate swaps (certain of which expired in September 2023 and the remaining outstanding interest rate swaps will expire in April 2024) that fix a portion of our variable-rate debt. At December 31, 2023, after considering the impact of interest rate swap agreements and excluding finance leases, the interest rate applicable to approximately 80% of our corporate debt was effectively fixed and the interest rate applicable to the remaining 20% (approximately $589 million) was variable. Assuming no outstanding balance on our Revolving Corporate Credit Facility, a 100 basis point increase in the underlying benchmark rate on our variable-rate debt at December 31, 2023 would result in an increase of approximately $5 million in annual cash interest due to the impact of our hedging arrangements discussed in Footnote 16 “Debt” to our Financial Statements. Assuming we had no outstanding hedging arrangements and no outstanding balance on our Revolving Corporate Credit Facility, a 100 basis point increase in the underlying benchmark rate on our variable-rate debt at December 31, 2023 would result in an annual increase in cash interest of approximately $8 million.
The following table presents the scheduled maturities and the total fair value as of year-end 2023 for our financial instruments that are impacted by market risks:
($ in millions) Average
Interest
Rate Maturities by Period
2024 2025 2026 2027 2028 There-after Total Carrying Value Total
Fair
Value
Assets – Maturities represent expected principal receipts; fair values represent assets
Vacation ownership notes receivable — non-securitized 12.0% $ 63 $ 42 $ 40 $ 40 $ 38 $ 208 $ 431 $ 433
Vacation ownership notes receivable — securitized 13.3% $ 171 $ 176 $ 181 $ 183 $ 181 $ 1,020 $ 1,912 $ 1,994
Contracts receivable for financed VOI sales, net 12.6% $ 3 $ 3 $ 3 $ 3 $ 3 $ 22 $ 37 $ 37
Liabilities – Maturities represent expected principal payments; fair values represent liabilities
Securitized debt 4.6% $ (193) $ (196) $ (319) $ (192) $ (189) $ (1,032) $ (2,121) $ (2,068)
Term Loan 7.2% $ — $ (784) $ — $ — $ — $ — $ (784) $ (784)
Revolving Corporate Credit Facility 7.5% $ — $ — $ — $ (105) $ — $ — $ (105) $ (105)
Senior Notes
2028 Notes 4.8% $ — $ — $ — $ — $ (350) $ — $ (350) $ (322)
2029 Notes 4.5% $ — $ — $ — $ — $ — $ (500) $ (500) $ (445)
2026 Convertible Notes —% $ — $ — $ (575) $ — $ — $ — $ (575) $ (508)
2027 Convertible Notes 3.3% $ — $ — $ — $ (575) $ — $ — $ (575) $ (513)
Non-interest bearing note payable —% $ (4) $ — $ — $ — $ — $ — $ (4) $ (4)
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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