
	Long-Term Debt and Borrowing Arrangements

The Company’s indebtedness, as of December 31, consisted of:



	2012			2011
Securitized vacation ownership debt: ^(a)
Term notes	$	1,770		$	1,625
Bank conduit facility	190			237
Total securitized vacation ownership debt	1,960			1,862
Less: Current portion of securitized vacation ownership debt	218			196
Long-term securitized vacation ownership debt	$	1,742		$	1,666
Long-term debt: ^(b)
Revolving credit facility (due July 2016)	$	85		$	218
Commercial paper	273			—
3.50% convertible notes (due May 2012)	—			36
9.875% senior unsecured notes (due May 2014)	42			243
6.00% senior unsecured notes (due December 2016)	361		^(c)	811
2.95% senior unsecured notes (due March 2017)	298			—
5.75% senior unsecured notes (due February 2018)	248			247
7.375% senior unsecured notes (due March 2020)	248			247
5.625% senior unsecured notes (due March 2021)	246			245
4.25% senior unsecured notes (due March 2022)	644			—
Vacation rentals capital leases	105			102
Other	52		^(d)	4
Total long-term debt	2,602			2,153
Less: Current portion of long-term debt	326			46
Long-term debt	$	2,276		$	2,107

^(a)

Represents non-recourse debt that is securitized through bankruptcy-remote special purpose entities (“SPEs”), the creditors of which have no recourse to the Company for principal and interest. These outstanding borrowings are collateralized by $2,543 million and $2,638 million of underlying gross vacation ownership contract receivables and related assets as of December 31, 2012 and 2011, respectively.


^(b)	The carrying amounts of the senior unsecured notes are net of unamortized discount of $18 million and $19 million as of December 31, 2012 and 2011, respectively.


^(c)	Includes $5 million of unamortized gains from the settlement of a derivative.


^(d)	Includes $48 million related to Shell, of which $40 million is current.

Maturities and Capacity

The Company’s outstanding debt as of December 31, 2012 matures as follows:



	Securitized Vacation Ownership Debt		Other		Total
Within 1 year	$	218	$	326	$	544
Between 1 and 2 years	246		62		308
Between 2 and 3 years	348		11		359
Between 3 and 4 years	209		458		667
Between 4 and 5 years	201		309		510
Thereafter	738		1,436		2,174
	$	1,960	$	2,602	$	4,562

Debt maturities of the securitized vacation ownership debt are based on the contractual payment terms of the underlying vacation ownership contract receivables. As such, actual maturities may differ as a result of prepayments by the vacation ownership contract receivable obligors.

As of December 31, 2012, available capacity under the Company’s borrowing arrangements was as follows:



	Securitized Bank Conduit Facility^(a)		Revolving Credit Facility
Total Capacity	$	650	$	1,000
Less: Outstanding Borrowings	190		85
Available Capacity	$	460	$	915	^(b)


^(a)	The capacity of this facility is subject to the Company’s ability to provide additional assets to collateralize additional securitized borrowings.


^(b)	The capacity under the Company’s revolving credit facility includes availability for letters of credit. As of December 31, 2012, the available capacity of $915 million was further reduced by $11 million of letters of credit to $904 million ($631 million after taking into consideration outstanding commercial paper borrowings).

Securitized Vacation Ownership Debt

As discussed in Note 14 — Transfer and Servicing of Financial Assets, the Company issues debt through the securitization of vacation ownership contract receivables.

Sierra Timeshare 2012-1 Receivables Funding, LLC. During March 2012, the Company closed a series of term notes payable, Sierra Timeshare 2012-1 Receivables Funding LLC, with an initial principal amount of $450 million at an advance rate of 87.5%. These borrowings bear interest at a weighted average coupon rate of 3.01% and are secured by vacation ownership contract receivables. As of December 31, 2012, the Company had $286 million of outstanding borrowings under these term notes.

Sierra Timeshare 2012-2 Receivables Funding, LLC. During July 2012, the Company closed a series of term notes payable, Sierra Timeshare 2012-2 Receivables Funding LLC, with an initial principal amount of $300 million at an advance rate of 90%. These borrowings bear interest at a weighted average coupon rate of 2.66% and are secured by vacation ownership contract receivables. As of December 31, 2012, the Company had $233 million of outstanding borrowings under these term notes.

Sierra Timeshare 2012-3 Receivables Funding, LLC. During November 2012, the Company closed a series of term notes payable, Sierra Timeshare 2012-3 Receivables Funding LLC, with an initial principal amount of $275 million at an advance rate of 89%. These borrowings bear interest at a weighted average coupon rate of 2.06% and are secured by vacation ownership contract receivables. As of December 31, 2012, the Company had $254 million of outstanding borrowings under these term notes.

As of December 31, 2012, the Company had $997 million of outstanding borrowings under term notes entered into prior to December 31, 2011.

The Company’s securitized debt includes fixed and floating rate term notes for which the weighted average interest rate was 4.9%, 5.8% and 6.6% during 2012, 2011 and 2010, respectively.

Sierra Timeshare Conduit Receivables Funding II, LLC. During August 2012, the Company renewed its securitized timeshare receivables conduit facility for a two-year period through August 2014. The facility bears interest at variable rates based on commercial paper rates and LIBOR rates plus a spread and has a capacity of $650 million. The bank conduit facility had a weighted average interest rate of 3.8%, 3.6% and 7.1% during 2012, 2011 and 2010, respectively.

As of December 31, 2012, the Company’s securitized vacation ownership debt of $1,960 million is collateralized by $2,543 million of underlying gross vacation ownership contract receivables and related assets. Additional usage of the capacity of the Company’s bank conduit facility is subject to the Company’s ability to provide additional assets to collateralize such facility. The combined weighted average interest rate on the Company’s total securitized vacation ownership debt was 4.8%, 5.5% and 6.7% during 2012, 2011 and 2010, respectively.

Long-Term Debt

Revolving Credit Facility. On July 15, 2011, the Company replaced its $980 million revolving credit facility with a $1.0 billion five-year revolving credit facility that expires on July 15, 2016. This facility is subject to a fee of 22.5 basis points based on total capacity and bears interest at LIBOR plus 142.5 basis points. The interest rate of this facility is dependent on the Company’s credit ratings. The available capacity of the facility also supports the Company's commercial paper program. As of December 31, 2012, the Company had $85 million of outstanding borrowings and $11 million of outstanding letters of credit and, as such, the total available capacity was $904 million. The Company considers outstanding borrowings under its commercial paper program to be a reduction of the available capacity on its revolving credit facility. As such, the available borrowing capacity under its revolving credit facility was $631 million as of December 31, 2012.

Commercial Paper. During October 2012, the Company initiated a commercial paper program on a private placement basis under which the Company may issue unsecured commercial paper notes up to a maximum amount of $500 million. The maturities of the commercial paper notes will vary, but may not exceed 366 days from the date of issue. The commercial paper notes are sold at a discount from par or will bear interest at a negotiated rate. The Company classifies outstanding borrowings under this program as short-term debt and includes such borrowings in current portion of long-term debt on its Consolidated Balance Sheet. As of December 31, 2012, the Company had $273 million of outstanding borrowings and the total available capacity was $227 million.

3.50% Convertible Notes. On May 19, 2009, the Company issued convertible notes (“Convertible Notes”) with face value of $230 million and bearing interest at a rate of 3.50%, for net proceeds of $224 million. The Company accounted for the conversion feature as a derivative instrument under the guidance for derivatives and bifurcated such conversion feature from the Convertible Notes for accounting purposes. The fair value of the Bifurcated Conversion Feature on the issuance date of the Convertible Notes was recorded as original issue discount for purposes of accounting for the debt component of the Convertible Notes. Therefore, interest expense greater than the coupon rate of 3.50% was recognized by the Company primarily resulting from the accretion of the discounted carrying value of the Convertible Notes to their face amount over the term of the Convertible Notes.

On May 19, 2009, concurrent with the issuance of the Convertible Notes, the Company entered into convertible note hedge and warrant transactions (“Warrants”) with certain counterparties. The Company paid $42 million to purchase cash-settled call options (“Call Options”) that were expected to reduce the Company’s exposure to potential cash payments required to be made by the Company upon the cash conversion of the Convertible Notes. Concurrent with the purchase of the Call Options, the Company received $11 million of proceeds from the issuance of Warrants to purchase shares of the Company’s common stock.

Pursuant to the Warrants, the Company sold to the counterparties Warrants to purchase in the aggregate up to approximately 18 million shares of the Company’s common stock. The Warrants had an exercise price of $20.16 (which represented a premium of approximately 90% over the Company’s closing price per share on May 13, 2009 of $10.61) which the Company expected to net share settle, meaning that the Company would issue a number of shares per Warrant corresponding to the difference between the Company’s share price at each Warrant expiration date and the exercise price of the Warrant.

The purchase of the Call Options and the sale of Warrants were separate contracts entered into by the Company, were not part of the Convertible Notes and did not affect the rights of holders under the Convertible Notes. Holders of the Convertible Notes did not have any rights with respect to the purchased Call Options or the sold Warrants. The Call Options met the definition of derivatives under the guidance for derivatives. As such, the instruments were marked to market each period. In addition, the derivative liability associated with the Bifurcated Conversion Feature was also marked to market each period. The Warrants met the definition of derivatives under the guidance; however, because these instruments were determined to be indexed to the Company’s own stock, their issuance was recorded in stockholders’ equity in the Consolidated Balance Sheet and were not subject to the fair value provisions of the guidance.

During 2010, the Company repurchased a portion of its Convertible Notes with a carrying value of $239 million ($101 million for the portion of Convertible Notes, including the unamortized discount, and $138 million for the related Bifurcated Conversion Feature) for $250 million, which resulted in a loss of $11 million during 2010. Such Convertible Notes had a face value of $114 million. Concurrent with the repurchase, the Company settled (i) a portion of the Call Options for proceeds of $136 million, which resulted in an additional loss of $3 million and (ii) a portion of the Warrants with payments of $98 million. As a result of these transactions, the Company made net payments of $212 million and incurred total losses of $14 million during 2010.

During 2011, the Company repurchased a portion of its remaining Convertible Notes with a carrying value of $251 million primarily resulting from the completion of a cash tender offer ($95 million for the portion of Convertible Notes, including the unamortized discount, and $156 million for the related Bifurcated Conversion Feature) for $262 million. Concurrent with the repurchases, the Company settled (i) a portion of the Call Options for proceeds of $155 million, which resulted in an additional loss of $1 million, and (ii) a portion of the Warrants with payments of $112 million. As a result of these transactions, the Company made net payments of $219 million and incurred total losses of $12 million during 2011.

As of December 31, 2011, the $36 million of Convertible Notes consisted of $12 million of debt and a derivative liability with a fair value of $24 million, respectively, related to the Bifurcated Conversion Feature. The Call Options were derivative assets recorded at their fair value of $24 million within other current assets and in the Consolidated Balance Sheet as of December 31, 2011.

During 2012, the Company repaid upon maturity, its remaining Convertible Notes with a carrying value of $45 million ($12 million for the Convertible Notes and $33 million for a related bifurcated conversion feature). Concurrent with the repayment, the Company settled the Call Options for proceeds of $33 million. As a result of these transactions, the Company made a net payment of $12 million. During the third quarter of 2012, the Company net share settled all of the outstanding Warrants by issuing 613,000 shares of its common stock.

9.875% Senior Unsecured Notes. On May 18, 2009, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 9.875%, for net proceeds of $236 million. Interest began accruing on May 18, 2009 and is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2009. The notes will mature on May 1, 2014 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness. During 2012, the Company repurchased a portion of these senior unsecured notes through a tender offer. As of December 31, 2012, the remaining face value of these notes was $43 million.

6.00% Senior Unsecured Notes. The Company’s 6.00% notes, with face value of $800 million, were issued in December 2006 for net proceeds of $796 million. Interest began accruing on December 5, 2006 and is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on June 1, 2007. The notes will mature on December 1, 2016 and are redeemable at the Company’s option at any time, in whole or in part, at the appropriate redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness. During 2012, the Company repurchased a portion of these senior unsecured notes through a tender offer. As of December 31, 2012, the remaining face value of these notes was $357 million.

2.95% Senior Unsecured Notes. During March 2012, the Company issued senior unsecured notes, with face value of $300 million and bearing interest at a rate of 2.95%, for net proceeds of $298 million. Interest began accruing on March 7, 2012 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2012. The notes will mature on March 1, 2017 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.

5.75% Senior Unsecured Notes. On September 20, 2010, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 5.75%, for net proceeds of $247 million. Interest began accruing on September 20, 2010 and is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2011. The notes will mature on February 1, 2018 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.

7.375% Senior Unsecured Notes. On February 25, 2010, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 7.375%, for net proceeds of $247 million. Interest began accruing on February 25, 2010 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2010. The notes will mature on March 1, 2020 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.

5.625% Senior Unsecured Notes. On March 1, 2011, the Company issued senior unsecured notes, with face value of $250 million and bearing interest at a rate of 5.625%, for net proceeds of $245 million. Interest began accruing on March 1, 2011 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2011. The notes will mature on March 1, 2021 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.

4.25% Senior Unsecured Notes. During March 2012, the Company issued senior unsecured notes, with face value of $650 million and bearing interest at a rate of 4.25%, for net proceeds of $643 million. Interest began accruing on March 7, 2012 and is payable semi-annually in arrears on March 1 and September 1 of each year, commencing on September 1, 2012. The notes will mature on March 1, 2022 and are redeemable at the Company’s option at any time, in whole or in part, at the stated redemption prices plus accrued interest through the redemption date. These notes rank equally in right of payment with all of the Company’s other senior unsecured indebtedness.

Vacation Rental Capital Leases. The Company leases vacation homes located in European holiday parks as part of its vacation exchange and rentals business. The majority of these leases are recorded as capital lease obligations under generally accepted accounting principles with corresponding assets classified within property, plant and equipment on the Consolidated Balance Sheets. The vacation rentals capital lease obligations had a weighted average interest rate of 4.5% during 2012, 2011 and 2010.

Other. The Company also maintains other debt facilities which arise through the ordinary course of operations. As of December 31, 2012, this debt primarily relates to assumed debt secured with VOI contracts receivables as part of the Shell acquisition. See Note 4 - Acquisitions for further details.

Early Extinguishment of Debt

During 2012, the Company repurchased a portion of 9.875% senior unsecured notes and 6.00% senior unsecured notes through tender offers totaling $650 million. In connection with these tender offers, the Company incurred a loss of $108 million, which is included within early extinguishment of debt on the Consolidated Statement of Income.

During 2011, the Company repurchased a portion of its Convertible Notes, which resulted in a loss of $12 million, which is included within early extinguishment of debt on the Consolidated Statement of Income.

During 2010, the Company incurred a loss of $14 million resulting from the repurchase of a portion of its Convertible Notes and a loss of $2 million from the early termination of its term loan and revolving foreign credit facilities. In connection with such early termination of the term loan, the Company effectively terminated a related interest swap agreement resulting in a loss of $14 million due to the reclassification of unrealized loss from AOCI. Such losses totaled $30 million, which are included within early extinguishment of debt on the Consolidated Statement of Income.

Interest Expense

The Company incurred non-securitized interest expense of $132 million during 2012. Such amounts consisted primarily of $137 million of interest on long-term debt, partially offset by $5 million of capitalized interest and are recorded within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company's non-securitized debt was $120 million.

The Company incurred non-securitized interest expense of $140 million during 2011. Such amounts consisted primarily of $150 million of interest on long-term debt, partially offset by $10 million of capitalized interest and are recorded within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company's non-securitized debt was $135 million.

The company incurred non-securitized interest expense of $137 million during 2010. Such amounts consisted primarily of $144 million of interest on long-term debt, partially offset by $7 million of capitalized interest and are recorded within interest expense on the Consolidated Statement of Income. Cash paid related to interest on the Company's non-securitized debt was $125 million.

Interest expense incurred in connection with the Company's securitized vacation ownership debt was $90 million, $92 million and $105 million during 2012, 2011 and 2010, respectively, and is recorded within consumer financing interest on the Consolidated Statements of Income. Cash paid related to such interest was $73 million, $76 million and $90 million during 2012, 2011 and 2010, respectively.