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The U.S. Time-share Industry Starting to Find Ways Around the Credit Freeze;
Marriott and Wyndham Lead the Way with Unconventional Deals
 in Selling Time-share Notes

By Sara K. Clarke, The Orlando Sentinel, Fla.McClatchy-Tribune Regional News

March 20, 2009 - The nation's time-share industry is starting to find ways around the credit freeze that has cut off its growth for more than the past six months.

Two major time-share companies based in Orlando, the nation's time-share capital, recently managed to convert some of their customers' mortgages into cash. It's a hopeful sign for a struggling industry that is largely based in Central Florida, which generates 10 percent of all U.S. time-share sales.

Marriott International said it recently sold about a quarter-billion dollars' worth of time-share notes, while Wyndham Worldwide said earlier this week it had just completed a deal for $46 million worth of time-share securities.

"In the fall, it was very difficult for any of us to get any type of deal done," said Tammy Evans, vice president of financial risk management for Marriott's time-share division. "They're definitely loosening up."

Time-share operators, which often lend customers the money to buy their shares of annual resort time, often need to resell those mortgages as "asset-backed securities" to raise cash for building new units and marketing their resorts.

Valuable precedents?

The Marriott and Wyndham deals, and time-share financing in general, are likely be hot topics when the industry gathers in Orlando later this month for its annual convention and trade show. Howard Nusbaum, president of the American Resort Development Association, heralded the two deals as "ice-breaking machines going through the tundra."

"What I'm going to be eager to see is whether this leads to more," he said.

When the credit markets around the world seized up last September, time-share companies were stuck with loans they couldn't convert into cash, so they had to scale back operations as they waited for their access to capital to return.

Orlando-based Wyndham Vacation Ownership eliminated one-fourth of its work force as a result of the market turmoil, including a significant number of jobs at its local headquarters. Other companies also laid off hundreds of workers as they adjusted to the slowdown. The industry employs about a half-million people nationwide, including tens of thousands of full- and part-time workers in Central Florida. The more than 120 resorts in the Orlando area have about 28,000 units combined.

New terms help cause

Some of the lenders who stopped doing business with smaller time-share companies last fall are returning to the table, though they're doing so slowly and on their own terms, said Tom Durkee, an Orlando accountant who works with time-share companies across the Southeast.

For one thing, banks have begun to realize that, if their time-share clients can't afford to grow or even maintain their existing resorts, more time-share owners might default on their existing loans and some companies might even fold.

"They really need for these companies to prosper," Durkee said. "They're, I think, realizing if they don't give these people some type of financing, that it calls into question their ability to get paid back" in full.

So far, the deals that are going through are unconventional and, in many cases, smaller than usual.

For example, Orlando-based Marriott Vacation Club International used a new loan structure in selling its latest time-share notes. It will receive less money upfront, and completing the deal will cost the company nearly twice what it would have spent a couple of years ago, Evans said. Marriott will also have to pay back its investors faster than it has had to do in the past.

"They [lenders] want to get in and out of these deals quickly, so they're not at risk" for as long as they were with past deals, she said.

Wyndham Vacation Ownership also noted that its $46 million deal was "relatively small" compared with the $650 million worth of securities transactions the company completed last year.

"These are good signs for the industry," Wyndham Worldwide Chief Executive Officer Steve Holmes said, but "by itself, it doesn't have an impact on our overall approach to time share," which is why the company plans to continue with its scaled-back operations.

The market overall is still far from fluid. Many other time-share developers continue to search for a solution to the financing freeze.

David Siegel, whose Orlando-based Westgate Resorts has scaled back its sales by about 50 percent, said he has projects on hold for lack of financing. He used to borrow against his time-share mortgages to get such work done, but these days he can't find anyone willing to lend him money, having lobbied everyone from politicians to pension funds.

"We're talking to anyone who will talk to us about lending," he said. "We're getting very creative, but there's no money out there."


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