BLUEGREEN VACATIONS CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include all statements that do not relate strictly to historical or current facts and can be identified by the use of words such as "anticipates," "estimates," "expects," "intends," "plans," "believes," "projects," "predicts," "seeks," "will," "should," "would," "may," "could," "outlook," "potential," and similar expressions or words and phrases of similar import. Forward-looking statements include, among others, statements relating to our future financial performance, our business prospects, strategy and relationships, our anticipated financial position, liquidity and capital needs, economic and industry conditions and their impact on our business and future financial performance, and other similar matters. These statements are based on management's current expectations and assumptions about future events, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those expressed in, or implied by, the forward-looking statements as a result of various factors, including, among others:
?adverse trends or disruptions in economic conditions generally or in the vacation ownership, vacation rental and travel industries;
?risks relating to public health issues, including in particular the COVID-19 pandemic and the effects of the pandemic. These include resort closures, travel and business restrictions, volatility in the international and national economy and credit markets, worker absenteeism, quarantines and other health-related restrictions; the length and severity of the COVID-19 pandemic and our ability to successfully resume full business operations thereafter; governmental and agency orders, mandates and guidance in response to the COVID-19 pandemic and the duration thereof, which is uncertain and will impact our ability to fully utilize resorts, sales centers and other marketing activities; the pace of recovery following the COVID-19 pandemic; competitive conditions; our liquidity and the availability of capital; our ability to successfully implement our strategic plans and initiatives to navigate the COVID-19 pandemic; risks that our current or future marketing alliances may not be available to us in the future; risks that default rates may increase and exceed our expectations; risks related to our indebtedness, including the potential for accelerated maturities and debt covenant violations; the risk of heightened litigation as a result of actions taken in response to the COVID-19 pandemic; the impact of the COVID-19 pandemic on consumers, including their income, their level of discretionary spending both during and after the pandemic, and their views towards travel and the vacation ownership industries; and the risk that our resort management fees and finance operations may not continue to generate recurring sources of cash during or following the pandemic to the extent anticipated or at all; ?adverse changes to, expirations or terminations of, or interruptions in, and other risks relating to our business and strategic relationships, management contracts, exchange networks or other strategic marketing alliances, and the risk that our business relationship withBass Pro under the revised terms of our marketing agreement and our relationship with Choice Hotels may not be as profitable as anticipated, or at all, or otherwise result in the benefits anticipated; ?the risks of the real estate market and the risks associated with real estate development, including a decline in real estate values and a deterioration of other conditions relating to the real estate market and real estate development;
?adverse events or trends in vacation destinations and regions where the resorts in our network are located, including weather-related events and adverse conditions related to the COVID-19 pandemic;
?decreased demand from prospective purchasers of vacation ownership interests
("VOIs");
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?our ability to maintain inventory of VOIs for sale;
?the availability of financing, our ability to sell, securitize or borrow against our VOI notes receivable at acceptable terms; and our ability to successfully increase our credit facility capacity or enter into capital market transactions or other alternatives to provide for sufficient available cash for a sustained period of time; ?our indebtedness may impact our financial condition and results of operations, and the terms of our indebtedness may limit, among other things, our activities and ability to pay dividends, and we may not comply with the terms of our indebtedness;
?changes in our senior management;
?our ability to comply with regulations applicable to the vacation ownership industry or our other activities, and the costs of compliance efforts or a failure to comply;
?our ability to successfully implement our marketing strategies and plans and the impact they may have on our results and financial condition, including that efforts to increase our VOI sales, to the extent pursued, may not be successful and may impact our cash flow;
?our ability to compete effectively in the highly competitive vacation ownership industry and against hotel and providers of other hospitality and lodging alternatives;
?our ability to offer or further enhance theVacation Club experience for ourVacation Club owners and risks related to our efforts and expenses in connection therewith, including that they may not result in the benefits anticipated and expenses may be greater than anticipated; ?our customers' compliance with their payment obligations under financing provided by us, the increased presence and efforts of "timeshare-exit" firms and the success of actions which we may take in connection therewith, and the impact of defaults on our operating results and liquidity position;
?the ratings of third-party rating agencies, including the impact of any downgrade on our ability to obtain, renew or extend credit facilities, or otherwise raise funds;
?changes in our business model and marketing efforts, plans or strategies, which may cause marketing expenses to increase or adversely impact our revenue, operating results and financial condition, and such expenses as well as our investments, including investments in new and expanded sales centers, and other sales and marketing initiatives, including screening methods and data driven analysis, may not achieve the desired results; ?technology and other changes and factors which may impact our telemarketing efforts, including new cell phone technologies that identify or block marketing calls;
?the impact of the resale market for VOIs on our business, operating results and financial condition;
?risks associated with our relationships with third-party developers, including that third-party developers who provide VOIs to be sold by us pursuant to fee-based services or just-in-time arrangements may not provide VOIs when planned and that third-party developers may not fulfill their obligations to us or to the homeowners associations that maintain the resorts they developed; ?risks associated with legal proceedings and regulatory proceedings, examinations or audits of our operations, including claims of noncompliance with applicable regulations or for development related defects, and the impact they may have on our financial condition and operating results;
?audits of our or our subsidiaries' tax returns, including that they may result in the imposition of additional taxes;
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?environmental liabilities, including claims with respect to mold or hazardous or toxic substances, and their impact on our financial condition and operating results;
?risks that natural disasters, including hurricanes, earthquakes, fires, floods and windstorms may adversely impact our business and operating results, including due to any damage to physical assets or interruption of access to physical assets or operations resulting therefrom, and the frequency and severity of natural disasters may increase due to climate change or other factors;
?our ability to maintain the integrity of internal or customer data, the failure of which could result in damage to our reputation and/or subject us to costs, fines or lawsuits; ?risks related to potential business expansion or other opportunities that we may pursue, including that they may involve significant costs and the incurrence of significant indebtedness and may not be successful; ?the updating of, and developments with respect to, technology, including the cost involved in updating our technology and the impact that any failure to keep pace with developments in technology could have on our operations or competitive position, and the risk that our information technology expenditures may not result in the expected benefits;
?the impact on our consolidated financial statements and internal control over financial reporting of the adoption of new accounting standards; and
?other risks and uncertainties inherent to our business, the vacation ownership industry and ownership of our common stock, including those discussed in the "Risk Factors" section of, and elsewhere in, our Annual Report on Form 10-K for the year endedDecember 31, 2019 and the "Risk Factors" section of this Quarterly Report on Form 10-Q.
Terms Used in this Quarterly Report on Form 10-Q
Except as otherwise noted or where the context requires otherwise, references in this Quarterly Report on Form 10-Q to "Bluegreen Vacations," "Bluegreen," "the Company," "we," "us" and "our" refer toBluegreen Vacations Corporation , together with its consolidated subsidiaries.
Non-GAAP Financial Measures
This Quarterly Report on Form 10-Q includes discussions of terms that are not recognized terms under generally accepted accounting principles inthe United States ("GAAP"), and financial measures that are not calculated in accordance with GAAP, including system-wide sales of VOIs, guest tours, sale to tour conversion ratio, average sales volume per guest, EBITDA, Adjusted EBITDA, and Segment Adjusted EBITDA. Refer to "Key Business and Financial Metrics and Terms Used by Management" below for further discussion of these financial metrics. In addition, see "Results of Operations" below for a reconciliation of EBITDA and Adjusted EBITDA to net income and system-wide sales of VOIs to gross sales of VOIs, which in each case, is the most comparable GAAP financial measure.
Critical Accounting Policies and Estimates
For a discussion of critical accounting policies, see "Significant Accounting
Policies" in our Annual Report on Form 10-K for the year ended
New Accounting Pronouncements
See Note 2 to our unaudited consolidated financial statements included in Item 1
of this report for a discussion of new accounting pronouncements applicable to
us.
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Executive Overview
We are a leading vacation ownership company that markets and sells VOIs and manages resorts in popular leisure and urban destinations. Our resort network includes 45Club Resorts (resorts in which owners in ourVacation Club have the right to use most of the units in connection with their VOI ownership) and 23Club Associate Resorts (resorts in which owners in ourVacation Club have the right to use a limited number of units in connection with their VOI ownership). OurClub Resorts andClub Associate Resorts are primarily located in popular, high-volume, "drive-to" vacation locations, includingOrlando ,Las Vegas ,Myrtle Beach andCharleston , among others. Through our points-based system, the approximately 218,000 owners in ourVacation Club have the flexibility, subject to availability, to stay at our resorts and have access to nearly 11,300 other hotels and resorts through partnerships and exchange networks. We also have a sales and marketing platform supported by marketing relationships, such as withBass Pro and Choice Hotels. These marketing relationships have historically generated sales within our core demographic.
Bluegreen Vacations Holding Corporation ("BVH"), formerly
Impact of the COVID-19 Pandemic
The COVID-19 pandemic has resulted in an unprecedented disruption in theU.S. economy and the travel, hospitality and vacation ownership industries due to, among other things, resort closures, travel restrictions and restrictions on business operations, including government guidance and restrictions with respect to travel, public accommodations, social gatherings and related matters. OnMarch 23, 2020 we temporarily closed all of our VOI sales centers; our retail marketing operations atBass Pro Shops andCabela's stores and outlet malls; and our Choice Hotels call transfer program. In connection with these actions we canceled existing owner reservations throughMay 15, 2020 and new prospect guest tours throughJune 30, 2020 . Further, some of our Club andClub Associate Resorts were closed in accordance with government mandates and advisories. Beginning inmid-May 2020 , we started the process of recommencing our sales and marketing operations and our closed resorts began to welcome guests as government mandates were lifted. BySeptember 30, 2020 , we recommenced marketing operations at 87Bass Pro Shops andCabela's stores and commenced marketing operations at 5 newCabela's stores, we reactivated our Choice Hotels call transfer program, all of our resorts were open, and all but one of our VOI sales centers were open. Resort occupancy for the third quarter of 2020 was approximately 70%. Additionally, inOctober 2020 , we recommenced marketing operations in one additional Bass Pro Shop and commenced marketing operations at 4 newCabela's stores for a total of 97Bass Pro Shops andCabela's stores. However, there is no assurance that our marketing operations at Bass Pro orCabela's stores, or our VOI sales centers will remain open, including in the event of an increase in COVID-19 cases. As a result of the effect of the pandemic, we implemented several cost mitigating activities beginning inMarch 2020 , including reductions in workforce of over 1,600 positions and the placement of another approximate 3,200 of our associates on temporary furlough or reduced work hours. As ofSeptember 30, 2020 , approximately 3,200 associates had returned to work on a full-time basis for a total of approximately 4,400 full-time associates as ofSeptember 30, 2020 compared to approximately 6,060 full-time associates as ofSeptember 30, 2019 . As a result of the effect of the COVID-19 pandemic, during the three and nine months endedSeptember 30, 2020 , we incurred$0.4 million and$5.1 million in severance, respectively, and$1.5 million and$13.1 million , respectively, of payroll and payroll benefit expense relating to employees on temporary furlough or reduced work hours. These payments and expenses are included in selling, general and administrative expenses in our unaudited consolidated statements of operations and comprehensive income for the three and nine months endedSeptember 30, 2020 . As a precautionary measure to provide additional liquidity if needed, inMarch 2020 , we drew down$60.0 million under our lines-of-credit and pledged or sold receivables under certain of our receivable backed facilities to increase our cash position. As ofSeptember 30, 2020 , we repaid the$60.0 million borrowed under our lines-of-credit. While we paid a special cash dividend of$1.19 per share duringAugust 2020 , there is no assurance that we will recommence paying regular dividends or pay any other special dividends in the future. During the second quarter of 2020, we suspended our regular quarterly cash dividends on our common stock. Also, inJune 2020 , we amended our Liberty Bank Facility to extend the advance period and maturity date, reduced the outstanding borrowings from$50.0 million to$40.0 million , decreased the advance rate from 85% for qualified confirming receivables to 80% bySeptember 2020 and, commencingJuly 1, 2020 , changed the interest rate from the Prime Rate with a floor of 4.00% to the Prime Rate minus 0.10% with a floor of 3.40%. InSeptember 2020 , we amended our NBA Receivables Facility to extend the advance period and maturity date, decreased the advance rate from 85%
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for qualified receivables to 80%, and changed the interest rate from one month LIBOR plus 2.75% (with an interest rate floor of 3.50%) to one month LIBOR plus 2.25% (with an interest rate floor of 3.00%). InOctober 2020 , we completed the 2020-A Term Securitization, a private offering and sale of approximately$131.0 million of investment-grade, VOI receivable backed notes (the "Notes") at an overall blended interest rate of approximately 2.60%. The gross advance rate for this transaction was 88.0% and the Notes mature inFebruary 2036 . Proceeds from the 2020-A Term Securitization were used to paydown approximately$82.1 million owed on existing receivable-backed facilities, (thus creating additional availability on those facilities), capitalize a reserve fund, pay fees and expenses associated with the transaction, and for general corporate purposes. We continue to actively pursue additional credit facility capacity, and capital market transactions. For more detailed information see "Liquidity and Capital Resources" below. We have historically financed a majority of our sales of VOIs, and accordingly, are subject to the risk of defaults by our customers. GAAP requires that we reduce sales of VOIs by our estimate of uncollectible VOI notes receivable. The COVID-19 pandemic has had a material adverse impact on unemployment inthe United States and economic conditions in general and the impact may continue for some time. While we believe that it is still too early to know the full impact of COVID- 19 on our default or delinquency rates as ofSeptember 30, 2020 , we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, duringMarch 2020 , we recorded an allowance for loan losses of$12.0 million , which includes our estimate of customer defaults as a result of the COVID-19 pandemic, based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the notes receivable and FICO scores of the customers. The Coronavirus Aid, Relief, and Economic Securities Act ("CARES Act") was signed into law onMarch 27, 2020 in response to the COVID-19 pandemic. As ofSeptember 30, 2020 , we evaluated the income tax provisions of the CARES Act and determined they would have no significant effect on either ourSeptember 30, 2020 income tax rate or the computation of our estimated effective tax rate for the year endedDecember 31, 2020 . However, we have taken advantage of the deferral of the employer portion of the tax withholding amounts and the employee retention tax credits provided for in the CARES Act. During the nine months endedSeptember 30, 2020 , we recorded a tax withholding deferral of$5.0 million and employee retention tax credits of$6.9 million , which is included in selling, general and administrative expenses in our unaudited consolidated statements of operations and comprehensive income for the nine months endedSeptember 30, 2020 .
VOI Sales and Financing
Our primary business is the marketing and selling of deeded VOIs, developed either by us or by third parties. Customers who purchase these VOIs receive an annual allotment of points, which can be redeemed for stays at one of our resorts or at nearly 11,300 other hotels and resorts available through partnerships and exchange networks. Historically, VOI companies have funded the majority of the capital investment in connection with resort development with internal resources and acquisition and development financing. In 2009, we began selling VOIs on behalf of third-party developers and have successfully diversified from a business focused on capital-intensive resort development to a more flexible model with a mix of developed and capital-light inventory as determined by management to be appropriate from time to time based on market and economic conditions, available cash, and other factors. Our relationships with third-party developers enable us to generate fees from the sales and marketing of their VOIs without incurring the significant upfront capital investment generally associated with resort acquisition or development. While sales of acquired or developed inventory typically result in a greater contribution to EBITDA and Adjusted EBITDA, fee-based VOI sales typically do not require an initial investment or involve development financing risk. Both acquired or developed VOI sales and fee-based VOI sales drive recurring, incremental and long-term fee streams by adding owners to ourVacation Club and new resort management contracts. Fee-based sales of VOIs comprised 32% and 38% of system-wide sales of VOIs during the three month and nine months endedSeptember 30, 2020 , respectively, and 51% for each of the three and nine months endedSeptember 30, 2019 . While we intend to remain flexible with respect to our sales of the different categories of our VOI inventory in the future based on economic conditions, business initiatives and other considerations, we currently expect that our percentage of fee-based sales will continue to decrease over time to reflecting our recent focus on developed VOI sales. In conjunction with our VOI sales, we also generate interest income by originating loans to qualified purchasers. Collateralized by the underlying VOIs, our loans are generally structured as 10-year, fully-amortizing loans with a fixed interest rate ranging from approximately 12% to 18% per annum. As ofSeptember 30, 2020 , the weighted-average interest rate on our VOI notes receivable was 14.9%. In addition, we earn fees for various other services, including title and escrow services in connection with the closing of VOI sales, and we generate fees for mortgage servicing. 35
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Resort Operations and Club Management
We enter into management agreements with the HOAs that maintain most of the resorts in ourVacation Club and earn fees for providing management services to those HOAs and our approximately 218,000Vacation Club owners. These resort management services include oversight of housekeeping services, maintenance, and certain accounting and administration functions. Our management contracts generally yield recurring cash flows and do not have the traditional risks associated with hotel management contracts that are generally linked to daily rate or occupancy. Our management contracts are typically structured as "cost-plus," with an initial term of three years and automatic one-year renewals. In connection with the management services provided to theVacation Club , we manage the reservation system and provide owner, billing and collection services. In addition to resort and club management services, we earn fees for various other services that generally produce recurring, predictable and long term-revenue, including construction management services for third-party developers. As described above, while some of our Club andClub Associate Resorts were closed duringMarch 2020 in response to the COVID-19 pandemic, all were subsequently reopened and remained open as ofSeptember 30, 2020 .
Key Business and Financial Metrics Used by Management
Operating Metrics
Sales of VOIs. Represent sales of our owned VOIs, including developed VOIs and those acquired through JIT and secondary market arrangements, reduced by equity trade allowances and an estimate of uncollectible VOI notes receivable. In addition to the factors impacting system-wide sales of VOIs (as described below), sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third-parties on a commission basis, which are not included in sales of VOIs. System-wide Sales of VOIs. Represents all sales of VOIs, whether owned by us or a third party immediately prior to the sale. Sales of VOIs owned by third parties are transacted as sales of VOIs in ourVacation Club through the same selling and marketing process we use to sell our VOI inventory. We consider system-wide sales of VOIs to be an important operating measure because it reflects all sales of VOIs by our sales and marketing operations without regard to whether we or a third party owned such VOI inventory at the time of sale. System-wide sales of VOIs is not a recognized term under GAAP and should not be considered as an alternative to sales of VOIs or any other measure of financial performance derived in accordance with GAAP or to any other method of analyzing our results as reported under GAAP.
Guest Tours. Represents the number of sales presentations given at our sales centers during the period.
Sale to Tour Conversion Ratio. Represents the rate at which guest tours are converted to sales of VOIs and is calculated by dividing guest tours by the number of VOI sales transactions.
Average Sales Volume Per Guest ("VPG"). Represents the sales attributable to
tours at our sales locations and is calculated by dividing VOI sales by guest
tours. We consider VPG to be an important operating measure because it measures
the effectiveness of our sales process, combining the average transaction price
with the sale-to-tour conversion ratio.
For further information see Item 8. Financial Statements and Supplementary Data
- Note 2: Basis of Presentation and Recently Issued Accounting Pronouncements in
our Annual Report on Form 10-K for the year ended December 31, 2019 .
EBITDA and Adjusted EBITDA
EBIDTA and Adjusted EBITDA. We define EBITDA as earnings, or net income, before taking into account interest income (excluding interest earned on VOI notes receivable), interest expense (excluding interest expense incurred on debt secured by our VOI notes receivable), income and franchise taxes and depreciation and amortization. We define Adjusted EBITDA as our EBITDA, adjusted to exclude amounts attributable to the non-controlling interest inBluegreen/Big Cedar Vacations (in which we own a 51% interest), loss (gain) on assets held for sale, and other items that we believe are not representative of ongoing operating results. Accordingly, we exclude severance charges net of employee retention tax credits, incremental costs associated with the COVID-19 pandemic, and amounts paid, accrued or incurred in connection with the Bass Pro settlement inJune 2019 in the computation of Adjusted EBITDA. For purposes of the EBITDA and Adjusted EBITDA calculations for each period presented, no adjustments were made for interest income earned on our VOI notes receivable or the interest expense incurred on debt that is secured by such notes receivable because they are both considered to be part of the ordinary operations of our business.
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We consider our total EBITDA, Adjusted EBITDA and our Segment Adjusted EBITDA to be indicators of our operating performance, and they are used by us to measure our ability to service debt, fund capital expenditures and expand our business. EBITDA and Adjusted EBITDA are also used by companies, lenders, investors and others because they exclude certain items that can vary widely across different industries or among companies within the same industry. For example, interest expense can be dependent on a company's capital structure, debt levels and credit ratings. Accordingly, the impact of interest expense on earnings can vary significantly among companies. The tax positions of companies can also vary because of their differing abilities to take advantage of tax benefits and because of the tax policies of the jurisdictions in which they operate. As a result, effective tax rates and provision for income taxes can vary considerably among companies. EBITDA and Adjusted EBITDA also exclude depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. These differences can result in considerable variability in the relative costs of productive assets and the depreciation and amortization expense among companies. EBITDA and Adjusted EBITDA are not recognized terms under GAAP and should not be considered as an alternative to net income (loss) or any other measure of financial performance or liquidity, including cash flow, derived in accordance with GAAP, or to any other method or analyzing our results as reported under GAAP. The limitations of using EBITDA or Adjusted EBITDA as an analytical tool include, without limitation, that EBITDA and Adjusted EBITDA do not reflect (i) changes in, or cash requirements for, our working capital needs; (ii) our interest expense, or the cash requirements necessary to service interest or principal payments on our indebtedness (other than as noted above); (iii) our tax expense or the cash requirements to pay our taxes; (iv) historical cash expenditures or future requirements for capital expenditures or contractual commitments; or (v) the effect on earnings or changes resulting from matters that we consider not to be indicative of our future operations or performance. Further, although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements. In addition, our definition of Adjusted EBITDA may not be comparable to definitions of Adjusted EBITDA or other similarly titled measures used by other companies. Results of Operations
Adjusted EBITDA for the three and nine months ended
We consider Segment Adjusted EBITDA in connection with our evaluation of the operating performance of our business segments as described in Note 12: Segment Reporting to our unaudited consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. See above for a discussion of our definition of Adjusted EBITDA, how management uses it to manage our business, and material limitations on its usefulness. The following tables set forth Segment Adjusted EBITDA, total Adjusted EBITDA, EBITDA and a reconciliation of EBITDA and Adjusted EBITDA to net income, the most comparable GAAP financial measure: For the Three Months Ended For the Nine Months Ended September 30, September 30, (in thousands) 2020 2019 2020 2019 Adjusted EBITDA - sales of VOIs ? and financing$ 27,344 $ 41,618 $ 24,402 $ 107,152 Adjusted EBITDA - resort operations ? and club management 15,391 15,462 49,429 44,983 Total Segment Adjusted EBITDA 42,735 57,080 73,831 152,135 Less: corporate and other (20,373) (20,109) (44,575) (60,308) Total Adjusted EBITDA attributable to shareholders$ 22,362 $ 36,971 $ 29,256 $ 91,827 37
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For the Three Months Ended For the Nine Months Ended
?September 30, ?September 30,
(in thousands) 2020 2019 2020 2019
Net income attributable to
shareholders $ 9,901 $ 20,327 $ 1,272 $ 24,297
Net income attributable to the
? non-controlling interest in
? Bluegreen/Big Cedar Vacations 2,644 2,248 4,021 9,095
Net Income 12,545 22,575 5,293 33,392
Add: Depreciation and
amortization 3,891 3,585 11,680 10,453
Less: Interest income (other
than interest
? earned on VOI notes
receivable) (623) (1,799) (3,388) (5,437)
Add: Interest expense -
corporate and other 3,409 5,326 11,932 14,564
Add: Franchise taxes 101 112 118 171
Add: Provision for income taxes 4,850 7,778 1,073 9,124
EBITDA 24,173 37,577 26,708 62,267
Loss (gain) on assets held for
sale 283 (166) 326 (2,146)
Add: Severance, net of employee
retention
credits 381 1,924 4,904 1,924
Add: COVID-19 incremental costs 282 - 1,756 -
Add: Bass Pro Settlement - - - 39,121
Adjusted EBITDA 25,119 39,335 33,694 101,166
Adjusted EBITDA attributable to
the
? non-controlling interest
? in Bluegreen/Big Cedar
Vacations (2,757) (2,364) (4,438) (9,339)
Adjusted EBITDA attributable to
shareholders $ 22,362 $ 36,971 $
29,256
The following table reconciles system-wide sales of VOIs to gross sales of VOIs, the most comparable GAAP financial measure.
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(in thousands) 2020 2019 2020 2019
Gross sales of VOIs $ 71,149 $ 82,729 $ 157,530 $ 225,834
Add: Fee-Based sales 33,159 87,646 97,266 237,793
System-wide sales of VOIs $ 104,308 $ 170,375 $ 254,796 $ 463,627
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For the three and nine months ended
Sales of VOIs and Financing
For the Three Months Ended September 30,
2020 2019
% of % of
?System- ?System-
?wide sales ?wide sales
Amount ? of VOIs (5) Amount ? of VOIs (5)
(in thousands)
Developed VOI sales (1) $ 37,314 36% $ 87,863 52%
Secondary Market sales 24,076 23 72,081 42
Fee-Based sales 33,159 32 87,646 51
JIT sales 14,845 14 4,505 3
Less: Equity trade allowances (6) (5,086) (5) (81,720) (48)
System-wide sales of VOIs 104,308 100% 170,375 100%
Less: Fee-Based sales (33,159) (32) (87,646) (51)
Gross sales of VOIs 71,149 68 82,729 49
Provision for loan losses (2) (11,884) (17) (16,411) (20)
Sales of VOIs 59,265 57 66,318 39
Cost of VOIs sold (3) (3,597) (6) (3,121) (5)
Gross profit (3) 55,668 94 63,197 95
Fee-Based sales commission revenue (4) 22,119 67 60,478 69
Financing revenue, net of financing
expense 15,545 15 15,008 9
Other income, net - 0 537 (1)
Other fee-based services, title
operations and other, net 481 0 1,847 1
Net carrying cost of VOI inventory (8,580) (8) (5,878) (3)
Selling and marketing expenses (53,613) (51) (88,232) (52)
General and administrative expenses -
sales and
? marketing (5,889) (6) (7,440) (4)
Operating profit - sales of VOIs and
financing 25,731 25% 39,517 23%
Add: Depreciation and amortization 1,405 1,507
Add: Severance 208
594
Adjusted EBITDA - sales of VOI and financing$ 27,344 $
41,618
(1)Developed VOI sales represent sales of VOIs acquired or developed by us as part of our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales. (2)Percentages for provision for loan losses are calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not as a percentage of system-wide sales of VOIs).
(3)Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not as a percentage of system-wide sales of VOIs).
(4)Percentages for Fee-Based sales commission revenue are calculated as a percentage of Fee-Based sales (and not as a percentage of system-wide sales of VOIs).
(5)Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs, unless otherwise indicated in the above footnotes.
(6)Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs. Subject to certain exceptions, equity trade allowances were generally eliminated inJune 2020 . ? 39
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For the Nine Months Ended September 30,
2020 2019
% of % of
?System- ?System-
?wide sales ?wide sales
Amount ? of VOIs (5) Amount ? of VOIs (5)
(in thousands)
Developed VOI sales (1) $ 128,396 50% $ 255,288 55%
Secondary Market sales 98,576 39 184,571 40%
Fee-Based sales 97,266 38 237,793 51
JIT sales 20,453 8 9,157 2
Less: Equity trade allowances (6) (89,895) (35) (223,182) (48)
System-wide sales of VOIs 254,796 100% 463,627 100%
Less: Fee-Based sales (97,266) (38) (237,793) (51)
Gross sales of VOIs 157,530 62 225,834 49
Provision for loan losses (2) (44,083) (28) (39,483) (17)
Sales of VOIs 113,447 45 186,351 40
Cost of VOIs sold (3) (8,734) (8) (17,541) (9)
Gross profit (3) 104,713 92 168,810 91
Fee-Based sales commission revenue (4) 64,619 66 161,033 68
Financing revenue, net of financing
expense 46,658 18 45,101 10
Other income, net - 0 537 0
Other fee-based services, title
operations and other, net 2,364 1 5,260 1
Net carrying cost of VOI inventory (27,407) (11) (18,853) (4)
Selling and marketing expenses (155,597) (61) (238,205) (51)
General and administrative expenses -
sales and
? marketing (19,372) (8) (60,823) (13)
Operating profit - sales of VOIs and
financing 15,978 6% 62,860 14%
Add: Depreciation and amortization 4,447 4,577
Add: Severance 3,977 594
Add: Bass Pro Settlement - 39,121
Adjusted EBITDA - sales of VOIs and
financing $ 24,402 $ 107,152
(1)Developed VOI sales represent sales of VOIs acquired or developed by us as part of our developed VOI business. Developed VOI sales do not include Secondary Market sales, Fee-Based sales or JIT sales. (2)Percentages for provision for loan losses are calculated as a percentage of gross sales of VOIs, which excludes Fee-Based sales (and not as a percentage of system-wide sales of VOIs).
(3)Percentages for costs of VOIs sold and gross profit are calculated as a percentage of sales of VOIs (and not as a percentage of system-wide sales of VOIs).
(4)Percentages for Fee-Based sales commission revenue are calculated as a percentage of Fee-Based sales (and not as a percentage of system-wide sales of VOIs).
(5)Represents the applicable line item, calculated as a percentage of system-wide sales of VOIs, unless otherwise indicated in the above footnotes.
(6)Equity trade allowances are amounts granted to customers upon trading in their existing VOIs in connection with the purchase of additional VOIs. Subject to certain exceptions, equity trade allowances were generally eliminated inJune 2020 . Sales of VOIs. Sales of VOIs were$59.3 million and$113.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$66.3 million and$186.4 million during the three and nine months endedSeptember 30, 2019 , respectively. Sales of VOIs were impacted by the factors described in the discussion of system-wide sales of VOIs, primarily the adverse impact of the COVID-19 pandemic. Gross sales of VOIs were reduced by$11.9 million and$44.1 million during the three and nine months endedSeptember 30, 2020 , respectively, and$16.4 million and$39.5 million during the three and nine months endedSeptember 30, 2019 , respectively, for the provision for loan losses. The provision for loan losses varies based on the amount of financed, non-fee based sales during the period and changes in our estimates of future notes receivable 40
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performance for existing and newly originated loans. Our provision for loan losses as a percentage of gross sales of VOIs was 17% and 28% during the three and nine months endedSeptember 30, 2020 , respectively, and 20% and 17% for the three and nine months endedSeptember 30, 2019 , respectively. The percentage of our sales which were realized in cash within 30 days from sale was approximately 41% and 40% during the three months endedSeptember 30, 2020 andSeptember 30, 2019 , respectively, and 41% and 42% during the nine months endedSeptember 30, 2020 andSeptember 30, 2019 , respectively. The decrease in the provision for loan losses during the three months endedSeptember 30, 2020 as compared to the same period in 2019 was primarily due to an increase in sales realized in cash and an increase in sales to existing owners during the 2020 period. Further, we believe that it is still too early to know the full impact of COVID-19 on our default or delinquency rates, however, we believe that the COVID-19 pandemic will have a significant impact on our VOI notes receivable. Accordingly, inMarch 2020 , we recorded an allowance for loan losses of$12.0 million , which includes our estimate of customer defaults as a result of the COVID-19 pandemic, based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the notes receivable and FICO scores of the customers. InMarch 2020 , we began receiving requests from borrowers requesting a modification of their VOI note receivable due to financial hardship resulting from the economic impacts of the COVID-19 pandemic. Hardship requests declined inJune 2020 and the program was discontinued onJune 30, 2020 . As ofSeptember 30, 2020 , 3.8% of our portfolio was granted up to a three-month deferral or extension of payments, of which 86% have subsequently resumed payments under the newly modified terms. In addition to the COVID-19 pandemic, the provision for loan losses continues to be impacted by defaults which we believe are attributable to the receipt of letters from third parties and attorneys who purport to represent certain VOI owners and who have encouraged such owners to become delinquent and ultimately default on their obligations. Defaults associated with such letters during the nine months endedSeptember 30, 2020 , decreased by 4% compared to the same period of 2019. See Note 9: Commitments and Contingencies to our unaudited consolidated financial statements included in Item 1 of this report for additional information regarding such letters and actions we have taken in connection with such letters. The impact of the COVID-19 pandemic is highly uncertain and there is no assurance that our steps taken to mitigate the impact on the pandemic or actions taken by timeshare exit firms will be successful. As a result, actual defaults may differ from our estimates and the allowance for loan losses may not prove to be adequate. In addition to the factors described which impact system-wide sales of VOIs, sales of VOIs are impacted by the proportion of system-wide sales of VOIs sold on behalf of third parties on a commission basis, which are not included in sales of VOIs.
The average annual default rates and delinquency rates (more than 30 days past due) on our VOI notes receivable were as follows:
For the Twelve Months Ended
September 30,
2020 2019
Average annual default rates 9.71% 8.59%
As of September 30,
2020 2019
Delinquency rates 3.23% 3.31%
System-wide sales of VOIs. System-wide sales of VOIs were $104.3 million and
$254.8 million during the three and nine months ended September 30, 2020 ,
respectively, and $170.4 million and $463.6 million during the three and nine
months ended September 30, 2019 , respectively. System-wide sales of VOIs
increased by 16.5% through February 29, 2020 compared to the same period in
2019. However, as previously described, on March 23, 2020 , as a result of the
COVID-19 pandemic, we temporarily closed all of our VOI sales centers; our
retail marketing operations at Bass Pro Shops and Cabela's stores and outlet
malls; and our Choice Hotels call transfer program. Beginning in mid-May 2020 ,
we started the process of recommencing our sales and marketing operations,
except for marketing operations at outlet malls due to our determination that
traffic to the malls did not justify reopening. By September 30, 2020 , we
recommenced our marketing operations at 87 Bass Pro Shops and Cabela's stores
and commenced marketing operations at 5 new Cabela's stores, we reactivated our
Choice Hotels call transfer program, all of our resorts were open, and all but
one of our VOI sales centers were open. The temporary closure of all marketing
operations and VOI sales centers as a result of the COVID-19 pandemic and other
adverse impacts
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of the pandemic significantly impacted system-wide sales of VOIs during the three and nine months endedSeptember 30, 2020 and is expected to continue to significantly impact system-wide sales of VOIs for the foreseeable future, including the remainder of 2020. However, the ultimate impact, including the extent and duration of the impact, cannot be predicted at this time. Included in system-wide sales are Fee-Based Sales, JIT Sales, Secondary Market Sales and developed VOI sales. Sales by category are tracked based on which deeded VOI is conveyed in each transaction. We manage which VOIs are sold based on several factors, including the needs of fee-based clients, our debt service requirements and default resale requirements under term securitizations and similar transactions. These factors and business initiatives contribute to fluctuations in the amount of sales by category from period to period. Fee-Based Sales comprised 32% and 38% of system-wide sales of VOIs during the three and nine months endedSeptember 30, 2020 , respectively, and 51% during both of the three and nine months endedSeptember 30, 2019 , respectively. The decrease in system-wide sales was due in part to the temporary closure of our VOI sales centers in response to the COVID-19 pandemic and other adverse impacts of the pandemic, as described above. While we intend to remain flexible with respect to our sales of the different categories of our VOI inventory in the future based on economic conditions, business initiatives and other considerations, we currently expect that our percentage of fee-based sales will decrease over time as we have recently increased efforts with respect to our developed VOI sales. Actual trends may differ from current expectations.
The following table sets forth certain information for system-wide sales of VOIs
for the three and nine months ended
For the Three Months Ended For the Nine Months Ended
?September 30, ?September 30,
2020 2019 Change 2020 2019 Change
Number of sales centers
open
at period-end 25 26 (4) % 25 26 (4) %
Number Bass Pro and
Cabela's
marketing locations at
period-end 92 75 23 % 92 75 23 %
Number of active sales
arrangements
? with third-party
clients at period-end 15 15 - % 15 15 - %
Total number of VOI sales
transactions 6,130 11,613 (47) % 15,657 30,530 (49) %
Average sales price per
transaction $ 17,094 $ 14,799 16 % $ 16,324 $ 15,290 7 %
Number of total guest
tours 36,268 65,875 (45) % 83,022 179,180 (54) %
Sale-to-tour conversion
ratio-
? total marketing guests 16.9% 17.6% (70) bp 18.9% 17.0% 190 bp
Number of new guest tours 17,583 40,914 (57) % 40,762 109,451 (63) %
Sale-to-tour conversion
ratio-
? new marketing guests 12.4% 14.4% (200) bp 15.1% 14.0% 110 bp
Percentage of sales to
existing owners 66.8% 52.5% 1,430 bp 63.9% 53.9% 1,000 bp
Average sales volume per
guest $ 2,889 $ 2,609 11 % $
3,079
Cost of VOIs Sold. During the three months endedSeptember 30, 2020 and 2019, cost of VOIs sold was$3.6 million and$3.1 million , respectively, and represented 6% and 5%, respectively, of sales of VOIs. During the nine months endedSeptember 30, 2020 and 2019, cost of VOIs sold was$8.7 million and$17.5 million , respectively, and represented 8% and 9%, respectively, of sales of VOIs. Cost of VOIs sold as a percentage of sales of VOIs varies between periods based on the relative costs of the specific VOIs sold in each period and the size of the point packages of the VOIs sold (due to offered volume discounts, including consideration of cumulative sales to existing owners). Additionally, the effect of changes in estimates under the relative sales value method, including estimates of sales, future defaults, upgrades and incremental revenue from the resale of repossessed VOI inventory, are reflected on a retrospective basis in the period the change occurs. Therefore, cost of sales will typically be favorably impacted in periods where a significant amount of Secondary Market VOI inventory is acquired or actual defaults and equity trades are higher than anticipated and the resulting change in estimate is recognized. Cost of VOIs sold as a percentage of sales of VOIs increased during the three months endedSeptember 30, 2020 , as compared to the prior year period, primarily due to sales of relatively higher cost VOIs and lower secondary market
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purchases during the current year period. Cost of VOIs sold as a percentage of sales of VOIs decreased during the nine months endedSeptember 30, 2020 , as compared to the prior year period, primarily due to the impact of anticipated higher future defaults partially offset by lower cost secondary market purchases. Fee-Based Sales Commission Revenue. During the three months endedSeptember 30, 2020 and 2019, we sold$33.2 million and$87.6 million , respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of$22.1 million and$60.5 million , respectively, in connection with those sales. During the nine months endedSeptember 30, 2020 and 2019, we sold$97.3 million and$237.8 million , respectively, of third-party VOI inventory under commission arrangements and earned sales and marketing commissions of$64.6 million and$161.0 million , respectively, in connection with those sales. The decreases in sales of third-party developer inventory on a commission basis during the 2020 periods was due primarily to the temporary closure of VOI sales centers as a result of the COVID-19 pandemic and other factors described above. We earned an average sales and marketing commission of 67% and 66% during the three and nine months endedSeptember 30, 2020 , respectively, and 69% and 68% during the three and nine months endedSeptember 30, 2019 , respectively, which is net of a reserve for commission refunds in connection with early defaults and cancellations, pursuant to the terms of certain of our fee-based service arrangements. The decrease in sales and marketing commissions as a percentage of fee-based sales for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 was primarily related to an increase in our reserve for cancellations coupled with a decrease in fee-based sales. Financing Revenue, Net of Financing Expense - Sales of VOIs. Interest income on VOI notes receivable was$19.0 million and$20.0 million during the three months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by interest expense on receivable-backed debt of$3.9 million and$5.1 million , respectively. Interest income on VOI notes receivable was$58.3 million and$60.0 million during the nine months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by interest expense on receivable-backed debt of$12.7 million and$15.4 million , respectively. The increase in finance revenue net of finance expense during the 2020 periods as compared to the 2019 periods is primarily due to lower outstanding receivable-backed debt balances and lower weighted-average cost of borrowings due to lower interest rates partially offset by lower notes receivable balances primarily due to the temporary closure of VOI sales centers as a result of the COVID-19 pandemic and other factors described above. Revenues from mortgage servicing of$1.4 million and$4.5 million during the three and nine months endedSeptember 30, 2020 , respectively, and$1.6 million and$4.6 million during the three and nine months endedSeptember 30, 2019 , respectively, are included in financing revenue, net of mortgage servicing expenses of$1.0 million and$3.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$1.6 million and$4.1 million during the three and nine months endedSeptember 30, 2019 , respectively. Other Fee-Based Services - Title Operations, net. During the three months endedSeptember 30, 2020 and 2019, revenue from our title operations was$1.3 million and$4.3 million , respectively, which was partially offset by expenses directly related to our title operations of$0.8 million and$2.4 million , respectively. During the nine months endedSeptember 30, 2020 and 2019, revenue from our title operations was$5.4 million and$10.1 million , respectively, which was partially offset by expenses directly related to our title operations of$3.0 million and$4.8 million , respectively. Resort title fee revenue varies based on sales volumes as well as the relative title costs in the jurisdictions where the inventory being sold is located. The decrease in the 2020 periods is due to the temporary closure of VOI sales centers as a result of the COVID-19 pandemic and other factors described above. Net Carrying Cost of VOI Inventory. The carrying cost of our VOI inventory was$10.4 million and$9.2 million during the three months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by rental and sampler revenues of$1.8 million and$3.4 million , respectively. The carrying cost of our VOI inventory was$30.9 million and$26.6 million during the nine months endedSeptember 30, 2020 and 2019, respectively, which was partially offset by rental and sampler revenues of$3.5 million and$7.8 million , respectively. The increase in net carrying costs of VOI inventory was primarily related to decreased rentals of developer inventory and decreased sampler stays due to, among other things, government ordered travel restrictions and temporary resort closures in accordance with government mandates and advisories associated with the COVID-19 pandemic as well as, increased maintenance fees and developer subsidies associated with our increase in VOI inventory. In certain circumstances, we offset marketing costs by using inventory for marketing guest stays. Selling and Marketing Expenses. Selling and marketing expenses were$53.6 million and$155.6 million during the three and nine months endedSeptember 30, 2020 , respectively, and$88.2 million and$238.2 million during the three and nine months endedSeptember 30, 2019 , respectively. As a percentage of system-wide sales of VOIs, selling and marketing expenses were 51% and 61% during the three and nine months endedSeptember 30, 2020 , respectively, compared to 52% 43
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and 51% during the three and nine months endedSeptember 30, 2019 , respectively. The decrease in selling and marketing expenses as a percentage of system-wide sales of VOIs during the three months endedSeptember 30, 2020 compared toSeptember 30, 2019 , is primarily due to cost mitigation efforts as well as a higher proportion of sales to owners in the third quarter of 2020. The increase in selling and marketing expenses as a percentage of system-wide sales of VOIs during the nine months endedSeptember 30, 2020 compared toSeptember 30, 2019 , is primarily attributable to certain fixed costs inherent in Bluegreen's sales and marketing operations and the costs of maintaining certain sales and marketing associates on furlough despite the temporary closure of our VOI sales sites and marketing operations during April andMay 2020 as discussed above. During the three and nine months endedSeptember 30, 2020 , we incurred$0.1 million and$4.0 million , respectively, in severance and$1.4 million and$12.3 million , respectively, of payroll and benefits expenses relating to employees on temporary furlough or reduced work hours as a result of the impact of the COVID-19 pandemic. In addition, since reopening activities commenced, we incurred costs associated with the reopening of 87 Bass Pro andCabela's stores that were open prior to the COVID-19 pandemic and the commencement of marketing operations at 5 newCabela's stores. We utilize these stores to sell mini-vacation packages to customers for future travel which require the customers to attend a timeshare presentation. Our agreement with Bass Pro previously provided for the payment of a variable commission upon the sale of a VOI to a marketing prospect obtained through the Bass Pro marketing channels. As previously disclosed, pursuant to the settlement agreement and amended marketing arrangement with Bass Pro entered into duringJune 2019 , the settlement payment and a portion of the ongoing annual marketing fees are fixed costs and/or are subject to annual minimums regardless of the volume of VOI sales produced from the resulting marketing prospects generated from the amended agreement, including reduced sales as a result of the temporary closure of our sales operations due to the COVID-19 pandemic. If our marketing operations pursuant to the amended agreement with Bass Pro do not generate a sufficient number of prospects and leads or is terminated or limited, we may not be able to successfully market and sell our products and services at anticipated levels or at levels required in order to offset the costs associated with our marketing efforts. In addition, the amended arrangement with Bass Pro has resulted in an increase in our marketing costs as a percentage of sales from the program, based on increases in program fixed costs and anticipated VOI sales volumes from this marketing channel. In light of the decrease in sales due to the COVID-19 pandemic, the increase in cost of this marketing program has adversely impacted our results of operations and cash flow and may continue to have an adverse impact if sales continue to be below expected levels. General and Administrative Expenses - Sales and Marketing Operations. General and administrative expenses attributable to sales and marketing operations were$5.9 million and$19.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$7.4 million and$60.8 million during the three and nine months endedSeptember 30, 2019 , respectively. As a percentage of system-wide sales of VOIs, general and administrative expenses attributable to sales and marketing operations was 6% and 8% during the three and nine months endedSeptember 30, 2020 , respectively, and 4% and 13% during the three and nine months endedSeptember 30, 2019 , respectively, reflecting fixed costs, including costs of maintaining certain sales associates on furlough. Included in general and administrative expenses attributable to sales and marketing operations for the nine months endedSeptember 30, 2019 was approximately$39.1 million related to the settlement of the dispute with Bass Pro inJune 2019 . See Note 9: Commitments and Contingencies to our unaudited consolidated financial statements included in Item 1 of this report for additional information regarding the Bass Pro settlement. ? 44
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Resort Operations and Club Management
For the Three Months Ended For the Nine Months Ended
?September 30, ?September 30,
(in thousands) 2020 2019 2020 2019
Resort operations and
? club management revenue $ 42,234 $ 47,338 $ 124,859 $ 132,856
Resort operations
and club
management expense (27,165) (32,435) (77,365) (89,161)
Operating profit - resort
? operations and club
management 15,069 36% 14,903 31% 47,494 38% 43,695 33%
Add: Depreciation and
amortization 208 321 588 1,050
Add: Severance 114 238 1,347 238
Adjusted EBITDA - resort
operations and club
management $ 15,391 $ 15,462 $ 49,429 $ 44,983
Resort Operations and Club Management Revenue. Resort operations and club
management revenue decreased 11% and 6% for the three and nine months ended
September 30, 2020 , compared to the three and nine months ended September 30,
2019 , respectively. Cost reimbursement revenue, which primarily consists of
payroll and payroll related expenses for management of the HOAs and other
services we provide where we are the employer, decreased 12% and 5% during the
three and nine months ended September 30, 2020 , compared to the three and nine
months ended September 30, 2019 , respectively, reflecting the temporary closure
of many resorts related to the COVID-19 pandemic, as described above. Net of
cost reimbursement revenue, resort operations and club management revenues
decreased 10% and 7% during the three and nine months ended September 30, 2020
as compared to three and nine months ended September 30, 2019 , respectively,
primarily as a result of decreases in revenues from our Traveler Plus program,
other owner programs, resort retail operations and third-party rental
commissions as a result of the COVID-19 pandemic. Our resort network includes 68
and 69 Vacation Club and Vacation Club Associate Resorts as of September 30,
2020 and 2019, respectively. We managed 49 resort properties as of both
September 30, 2020 and September 30, 2019 .
Resort Operations and Club Management Expense. During the three and nine months
ended September 30, 2020 , resort operations and club management expense
decreased 16% and 13% , compared to the three and nine months ended September
30, 2019 , respectively. The decreases were primarily due to cost mitigation
efforts implemented in the first quarter of 2020 in addition to lower costs
related to the Traveler Plus program, other owner programs and resort retail
operations in the 2020 periods as compared to the 2019 periods, in each case, as
a result of the COVID-19 pandemic.
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Corporate and Other
For the Three Months Ended For the Nine Months Ended
?September 30, ?September 30,
(dollars in thousands) 2020 2019 2020 2019
General and administrative
expenses -
? corporate and other $ (20,254) $ (22,149) $ (48,603) $ (58,603)
Adjusted EBITDA attributable to
the
? non-controlling interest
? in Bluegreen/Big Cedar
Vacations (2,757) (2,364) (4,438) (9,339)
Other (expense) income, net (365) 1,609 41 3,691
Franchise taxes 101 112 118 171
Loss (gain) on assets held for
sale 283 (166) 326 (2,146)
Add: Depreciation and
amortization 2,278 1,757 6,645 4,826
Add: Severance 59 1,092 1,782 1,092
Less: Employee Retention credit
related to severance - - (2,202) -
Add: COVID-19 incremental costs 282 - 1,756 -
Adjusted EBITDA - Corporate and
other $ (20,373) $ (20,109) $
(44,575)
General and Administrative Expenses - Corporate and Other. General and administrative expenses attributable to corporate overhead were$20.3 million and$48.6 million during the three and nine months endedSeptember 30, 2020 , respectively, and$22.1 million and$58.6 million during the three and nine months endedSeptember 30, 2019 , respectively. The decreases were primarily due to a$6.9 million employee retention credit earned inJune 2020 under the CARES Act ($2.2 million of which was earned on severance). This credit was partially offset by$0.1 million and$1.8 million in severance cost for corporate employees during the three and nine months endedSeptember 30, 2020 , respectively, of which$0.1 million and$1.2 million , respectively, was due to severance related to cost mitigation efforts attributable to the COVID-19 pandemic. Adjusted EBITDA Attributable to Non-Controlling Interest inBluegreen/Big Cedar Vacations . We include in our consolidated financial statements the results of operations and financial condition ofBluegreen/Big Cedar Vacations , our 51% owned subsidiary. The non-controlling interest in Adjusted EBITDA ofBluegreen/Big Cedar Vacations is the portion ofBluegreen/Big Cedar Vacations' Adjusted EBITDA that is attributable toBig Cedar LLC , which holds the remaining 49% interest inBluegreen/Big Cedar Vacations . Adjusted EBITDA attributable to the non-controlling interest inBluegreen/Big Cedar Vacations was$2.8 million and$4.4 million during the three and nine months endedSeptember 30, 2020 , respectively, and$2.4 million and$9.3 million during the three and nine months endedSeptember 30, 2019 , respectively. The decrease in Adjusted EBITDA attributable to the non-controlling interest inBluegreen/Big Cedar Vacations for the nine months endedSeptember 30, 2020 was primarily related to the impact of the COVID-19 pandemic, including the temporary closure of our VOI sales centers in connection with the COVID-19 pandemic as described above. Interest Expense. Interest expense not related to receivable-backed debt was$3.4 million and$11.9 million during the three and nine months endedSeptember 30, 2020 , respectively, and$5.3 million and$14.6 million during the three and nine months endedSeptember 30, 2019 , respectively. The decrease in interest expense during the three and nine months endedSeptember 30, 2020 was primarily due to a lower weighted-average cost of borrowing, partially offset by higher outstanding debt balances during the 2020 periods. Other (Expense) Income, net. Other (expense) income, net was($0.4) million and$0.1 million during the three and nine months endedSeptember 30, 2020 , respectively, and$2.1 million and$4.2 million during the three and nine months endedSeptember 30, 2019 , respectively. These decreases were primarily related to a land sale duringJune 2019 that resulted in a gain of$2.0 million and$1.7 million in Hurricane Irma business interruption insurance proceeds received inJuly 2019 . Provision for Income Taxes. Our effective income tax rate was approximately 46% and 27% for the nine months endedSeptember 30, 2020 and 2019, respectively. Effective income tax rates for interim periods are based upon our current estimated annual rate. Our effective income tax rate varies based upon the estimate of taxable earnings as well as on the mix of taxable earnings in the various states in which we operate. Our effective income tax rate was different than the expected federal income tax rate of 21% due to the impact of nondeductible items, state income taxes and changes in valuation
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allowances on deferred tax assets. For further information, see Note 10: Income Taxes to our unaudited consolidated financial statements included in Item 1 of this report.
Changes in Financial Condition
The following table summarizes our cash flows for the periods indicated (in
thousands):
For the Nine Months Ended
?September 30,
2020 2019
Net cash provided by operating activities $ 51,975 $ 50,325
Net cash provided by (used in) investing activities 74,272 (15,253)
Net cash used in financing activities (137,478) (77,030)
Net decrease in cash, cash equivalents, and restricted cash
Cash Flows from Operating Activities
The increase of$1.7 million to$52.0 million of operating cash flow during the nine months endedSeptember 30, 2020 compared to the nine months endedSeptember 30, 2019 reflects the following:
?a
?
?
?decreases in sales of VOIs, including cash sales and down payments from customers as a result of the impact of the COVID-19 pandemic, including the temporary closure of VOI sales centers in response to the COVID-19 pandemic, and
?a reduction in working capital.
Cash Flows from Investing Activities
Cash provided by investing activities increased$89.5 million during the nine months endedSeptember 30, 2020 compared to the same period in 2019, reflecting the repayment in full of the$80.0 million loan we previously made to Bluegreen Vacations Holding corporation (previouslyBBX Capital Corporation ) ("BVH") (as described in Note 11 to the Consolidated Financial Statements) and decreased expenditures for property and equipment in the 2020 period, partially offset by$3.2 million in net proceeds received for the sale of land during the 2019 period.
Cash Flows from Financing Activities
Cash used in financing activities increased$60.4 million during the nine months endedSeptember 30, 2020 compared to the same period in 2019 primarily due to$11.7 million of repurchases of our common stock in a private transaction during the 2020 period and increased dividend payments of$60.0 million as a result of a special cash dividend of$1.19 per share of our common stock which was paid in 2020. BVH, which holds approximately 93% of our common stock, utilized its proceeds from this special cash dividend to repay the$80.0 million loan we previously made to BVH, as described above. The increases in cash used in financing activities during the 2020 period compared to the 2019 period were partially offset by decreased net repayments on lines-of-credit and notes payable and receivable-backed notes payable during the 2020 period compared to the 2019 period. All amounts borrowed on our line-of credit in connection with the COVID-19 pandemic have been repaid as ofSeptember 30, 2020 .
For additional information on the availability of cash from existing credit facilities, as well as repayment obligations, see "Liquidity and Capital Resources" below.
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Seasonality
We have historically experienced, and expect to continue to experience, seasonal fluctuations in our revenues and results of operations. This seasonality has resulted, and may continue to result, in fluctuations in our quarterly operating results. Due to consumer travel patterns, we typically have seen more tours and experience higher VOI sales during the second and third quarters. However, due to the impact of the COVID-19 pandemic, including the temporary closures of our marketing operations and VOI sales centers as described above, we experienced significantly decreased sales of VOIs in the second and third quarters of 2020 as compared to prior years and currently expect such adverse impact to continue for the remainder of 2020 and into 2021.
Liquidity and Capital Resources
Our primary sources of funds from internal operations are: (i) cash sales; (ii) down payments on VOI sales which are financed; (iii) proceeds from the sale of, or borrowings collateralized by, VOI notes receivable; (iv) cash from finance operations, including mortgage servicing fees and principal and interest payments received on the purchase money mortgage loans arising from sales of VOIs; and (v) net cash generated from sales and marketing fee-based services and other fee-based services, including resort management operations. While the vacation ownership business has historically been capital intensive and we have pursued transactions or activities which require significant capital investment and adversely impact cash flows, including VOI development or acquisitions, we have also sought to focus on the generation of "free cash flow" (defined as cash flow from operating activities, less capital expenditures) by: (i) incentivizing our sales associates and creating programs with third-party credit card companies to generate a higher percentage of sales in cash; (ii) maintaining sales volumes that focus on efficient marketing channels; (iii) limiting our capital and inventory expenditures; (iv) utilizing sales and marketing, mortgage servicing, resort management services, title and construction expertise to pursue fee-based-service business relationships that generally require less up-front capital investment and have the potential to produce incremental cash flows; and (v) more recently, by selling VOIs obtained through secondary market or JIT arrangements. We consider free cash flow to be a measure of cash generated by operating activities that can be used for future investing and financing activities, however, there is no assurance that we will generate free cash flow or that any cash flow generated will be used for such purposes. While we intend to remain flexible with our sales of different categories of VOI inventory in the future, we currently expect that our mix of fee-based inventory will decrease over time. We have$21.3 million of required contractual obligations coming due within one year, as well as one facility with an advance period that will expire at the end of 2020. While there is no assurance that we will be successful, we intend to seek to renew or extend our debt. The ability to sell and/or borrow against notes receivable from VOI buyers has been critical to our continued liquidity. A financed VOI buyer is generally only required to pay a minimum of 10% to 20% of the purchase price in cash at the time of sale; however, selling, marketing and administrative expenses attributable to the sale are primarily cash expenses that generally exceed a buyer's minimum required down payment. Accordingly, having financing facilities available for the hypothecation, sale or transfer of our VOI notes receivable has been critical to our ability to meet our short and long-term cash needs. We have attempted to maintain a number of diverse financing facilities. Historically, we have relied on our ability to sell receivables in the term securitization market in order to generate liquidity and create capacity in our receivable facilities. We have historically financed a majority of our sales of VOIs, and accordingly, are subject to the risk of defaults by our customers. While it is still too early to know the full impact of COVID- 19 on our default or delinquency rates, we believe that the COVID-19 pandemic will have a significant impact on the performance of our VOI notes receivable. Accordingly, inMarch 2020 , we recorded an allowance for loan losses of$12.0 million , which included our estimate of customer defaults as a result of the COVID-19 pandemic based on our historical experience, forbearance requests received from our customers, and other factors, including but not limited to, the seasoning of the notes receivable and FICO scores of the customers. The impact of the COVID-19 pandemic is rapidly changing and highly uncertain. Accordingly, and due to other risks and uncertainties associated with assumptions and changing market conditions, our allowance may not prove to be accurate and may be increased in future periods, which would adversely impact our operating results for those periods. Further, the COVID-19 pandemic has resulted in instability and volatility in the financial markets. As described above, our ability to borrow against or sell our VOI notes receivable has historically been a critical factor in our liquidity. If we are 48
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unable to renew credit facilities or obtain new credit facilities, our business, results of operations, liquidity, or financial condition may be materially, adversely impacted.
In connection with our capital-light business activities, we have entered into agreements with third-party developers that allow us to buy VOI inventory, typically on a non-committed basis, prior to when we intend to sell such VOIs, although there is no assurance that these third party developers will be in a position to deliver that inventory in the future. Our capital-light business strategy also includes secondary market sales, pursuant to which we enter into secondary market arrangements with certain HOAs and others on a non-committed basis, which allows us to acquire VOIs generally at a significant discount, as such VOIs are typically obtained by the HOAs through foreclosure in connection with maintenance fee defaults. Acquisitions of JIT and secondary market inventory during the remainder of 2020 is expected to be between$1.0 million to$3.0 million . During the first quarter of 2020, we paid a cash dividend of$0.13 per share on our common stock which totaled$9.7 million . OnApril 22, 2020 , our board of directors suspended regular quarterly cash dividends on our common stock due to the impact of the COVID-19 pandemic. During each of the first, second and third quarter of 2019, we paid a cash dividend of$0.17 per share on our common stock, which totaled$12.7 million each quarter and$38.1 million in the aggregate. OnJuly 22, 2020 , we declared a special cash dividend of$1.19 per share on our common stock, or$86.3 million in the aggregate, which was paid onAugust 21, 2020 to shareholders of record as of the close of trading onAugust 6, 2020 . There is no assurance that regular or any other special cash dividends will be paid in the future. InApril 2015 , one of our wholly owned subsidiaries provided an$80.0 million loan to BVH. BVH currently owns approximately 93% or our outstanding common stock. Amounts outstanding bore interest at a rate of 6% per annum untilApril 17, 2020 , at which time the interest rate was reduced to 4% per annum. Interest only payments were required on a quarterly basis, with all outstanding amounts becoming due and payable at maturity. During the three months endedSeptember 30, 2020 and 2019, we recognized$0.5 million and$1.2 million , respectively, of interest income on the loan to BVH. During the nine months endedSeptember 30, 2020 and 2019, we recognized$2.5 million and$3.6 million , respectively of interest income on the loan to BVH. BVH used its proceeds from the special cash dividend paid duringAugust 2020 , described above, to repay the loan in full. InOctober 2020 , we completed the 2020-A Term Securitization, a private offering and sale of approximately$131.0 million of investment-grade, VOI receivable backed notes (the "Notes"), including approximately$48.6 million of Class A Notes, approximately$47.9 million of ClassB Notes and approximately$34.5 million of ClassC Notes with interest rates of 1.55%, 2.49%, and 4.22%, respectively, which blends to an overall interest rate of approximately 2.60%. The gross advance rate for this transaction was 88.0%. The Notes mature inFebruary 2036 .KeyBanc Capital Markets Inc. ("KeyCM") andBarclays Capital Inc. acted as co-lead managers and were the initial purchasers of the Notes. KeyCM also acted as structuring agent for the transaction. Subject to the performance of the collateral, we will receive any excess cash flows generated by the receivables transferred under the 2020-A Term Securitization (excess meaning after payments of customary fees, interest, and principal under the 2020-A Term Securitization) on a pro-rata basis as borrowers make payments on their VOI loans. While ownership of the VOI receivables included in the 2020-A Term Securitization is transferred and sold for legal purposes, the transfer of these receivables is accounted for as a secured borrowing for financial accounting purposes. Accordingly, no gain or loss was recognized as a result of this transaction. InOctober 2020 , we repaid in full the notes payable issued in connection with the 2012 Term Securitization. Accordingly, the related unamortized debt issuance costs of$0.1 million were written off during the fourth quarter of 2020. Our level of debt and debt service requirements have several important effects on our operations, including the following: (i) significant debt service cash requirements reduce the funds available for operations and future business opportunities and increase our vulnerability to adverse economic and industry conditions, as well as conditions in the credit markets, generally; (ii) our leverage position increases our vulnerability to economic and competitive pressures; (iii) the financial covenants and other restrictions contained in indentures, credit agreements and other agreements relating to our indebtedness require us to meet certain financial tests and may restrict our ability to, among other things, pay dividends, borrow additional funds, dispose of assets or make investments; and (iv) our leverage position may limit funds available for acquisitions, working capital, capital expenditures, dividends and other general corporate purposes. Certain of our competitors operate on a less leveraged basis and have greater operating and financial flexibility than we do.
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Credit Facilities for Receivables with Future Availability
We maintain various credit facilities with financial institutions which allow us to borrow against or sell our VOI notes receivable. As ofSeptember 30, 2020 , we had the following credit facilities with future availability, all of which are subject to revolving availability terms during the advance period and therefore provide for additional availability as the facility is paid down, subject in each case to compliance with covenants, eligible collateral and applicable terms and conditions during the advance period (dollars in thousands): Advance Period Borrowing Outstanding Availability ?Expiration; Borrowing Rate; ?Limit as of ?Balance as of ?as of ?Borrowing ?Rate as of ?September 30, ?September 30, ? September 30, ?Maturity as of ?September 30, ?2020 ?2020 ?2020 ?September 30, 2020 2020 Liberty Bank June 2021; Prime Rate - 0.10%; floor of Facility (4) $ 40,000 $ 19,715 $ 20,285 ?June 2024 3.40%; 3.40% 30 day LIBOR+2.25% to 2.75%; NBA Receivables September 2023; floor of 3.00% to 3.50%; Facility 70,000 33,389 36,611 ?March 2028 3.35% (1) Pacific Western September 2021; 30 day LIBOR+2.75% to 3.00%; Facility (4) 40,000 24,313 15,687 ?September 2024 3.03% 30 day KeyBank/DZ LIBOR or
Purchase Facility December 2022; CP +2.25%;
(4) 80,000 60,981 19,019 ?December 2024 2.50% (2)
Quorum Purchase December 2020;
Facility 50,000 34,240 15,760 ?December 2032 (3)
$ 280,000 $ 172,638 $ 107,362
(1)As described in further detail below, borrowings prior to September 25, 2020
accrue interest at a rate equal to one month LIBOR plus 2.75% (with an interest
rate floor of 3.50%), provided that the rate shall decrease to one-month LIBOR
plus 2.25% (with an interest rate floor of 3.00%) on the then remaining balance
of borrowing prior to September 25,2020 if new advances subsequent to September
25,2020 are at least $25.0 million by June 30, 2021 . Borrowings after September
25, 2020 accrue interest at one-month LIBOR plus 2.25% (with an interest rate
floor of 3.00%).
(2)Borrowings accrue interest at a rate equal to either LIBOR, a "Cost of Funds"
rate or commercial paper ("CP") rates plus 2.25%. As described in further detail
below, the interest rate will increase to the applicable rate plus 3.25% upon
the expiration of the advance period.
(3)Of the amounts outstanding under the Quorum Purchase Facility at September
30, 2020 , $2.4 million accrues interest at a rate per annum of 4.75%,
$16.4 million accrues interest at a fixed rate of 4.95%, $1.3 million accrues
interest at a fixed rate of 5.00%, $13.2 million accrues interest at a fixed
rate of 5.10%, and $0.8 million accrues interest at a fixed rate of 5.50%.
(4)Balance and availability indicated above is prior to giving effect to October repayments in connection with the 2020 Term Securitization.
Liberty Bank Facility. Since 2008, we have maintained a revolving VOI notes receivable hypothecation facility (the "Liberty Bank Facility") with Liberty Bank which provides for advances on eligible receivables pledged under the Liberty Bank Facility, subject to specified terms and conditions, during the revolving credit period. OnJune 25, 2020 , we amended the Liberty Bank Facility to extend the revolving credit period fromJune 2020 toJune 2021 , and the maturity fromMarch 2023 toJune 2024 . In addition, the amendment decreased the advance rate with respect to Qualified Timeshare Loans from 85% to 80% of the unpaid principal balance of the Qualified Timeshare Loans throughSeptember 2020 . The advance rate is 60% of the unpaid principal balance of Non-Conforming Qualified Timeshare Loans. The amendment also reduced the maximum permitted outstanding borrowings from$50.0 million to$40.0 million , subject to the terms of the facility, and effectiveJuly 1, 2020 , decreased the interest rate to theWall Street Journal ("WSJ") Prime Rate minus 0.10% with a floor of 3.40% from the Prime Rate with a floor of 4.00%. In addition, recourse to Bluegreen under the amended facility was reduced to$10 million , with certain exceptions set forth in the facility. Subject to the terms of the facility, principal and interest due under the Liberty Bank Facility are paid as cash is collected on the pledged receivables, with the remaining balance being due by maturity. NBA Receivables Facility.Bluegreen/Big Cedar Vacations has a revolving VOI hypothecation facility (the "NBA Receivables Facility") withNational Bank of Arizona ("NBA") which was amended and restated onSeptember 25, 2020 . The Amended and Restated NBA Receivables Facility extended the revolving advance period fromSeptember 2020 toSeptember 2023 and the maturity date fromMarch 2025 toMarch 2028 . In addition, the interest rate on all new advances made under the facility will be one month LIBOR plus 2.25% (with an interest rate floor of 3.00%). Further, if new advances of at least$25.0 million are made byJune 30, 2021 , the interest rate on borrowings under the facility atSeptember 25, 2020 , 50
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to the extent then remaining outstanding, will be reduced from the current rate of one month LIBOR plus 2.75% (with an interest rate floor of 3.50%) to one month LIBOR plus 2.25% (with an interest rate floor of 3.00%). The Amended and Restated NBA Receivables Facility provides for advances at a rate of 80% on eligible receivables pledged under the facility (decreased from the prior rate of 85%), subject to eligible collateral and specified terms and conditions, during the revolving credit period. The maximum borrowings allowed under the facility remains at$70.0 million . In addition, recourse to Bluegreen/Big Cedar under the amended facility was reduced to$23.8 million as ofSeptember 25, 2020 and will be reduced by$1.3 million per month startingOctober 31, 2020 until it reaches a floor of$10 million . Subject to the terms of the facility, principal and interest payments received on pledged receivables are applied to principal and interest due under the facility, with the remaining outstanding balance being due by maturity. Pacific Western Facility. We have a revolving VOI notes receivable hypothecation facility (the "Pacific Western Facility") withPacific Western Bank , which provides for advances on eligible VOI notes receivable pledged under the facility, subject to specified terms and conditions, during a revolving credit period. Maximum outstanding borrowings under the Pacific Western Facility are$40.0 million subject to eligible collateral and customary terms and conditions. The revolving advance period expires inSeptember 2021 and the Pacific Western Facility matures inSeptember 2024 (in each case, subject to an additional 12-month extension at the option ofPacific Western Bank ). Eligible "A" VOI notes receivable that meet certain eligibility and FICO score requirements, which we believe are typically consistent with loans originated under our current credit underwriting standards, are subject to an 85% advance rate. The Pacific Western Facility also allows for certain eligible "B" VOI notes receivable (which have less stringent FICO score requirements) to be funded at a 53% advance rate. Borrowings outstanding under the Pacific Western Facility accrue interest at an annual rate equal to 30-day LIBOR plus 3.00%; provided, however, that a portion of the borrowings, to the extent such borrowings are in excess of established debt minimums, will accrue interest at 30-day LIBOR plus 2.75%. Subject to the terms of the facility, principal repayments and interest on borrowings under the Pacific Western Facility are paid as cash is collected on the pledged VOI notes receivable, subject to future required decreases in the advance rates after the end of the revolving advance period, with the remaining outstanding balance being due by maturity. The facility has limited recourse not to exceed$10.0 million .KeyBank /DZ Purchase Facility. We have a VOI notes receivable purchase facility (the "KeyBank /DZ Purchase Facility") withDZ Bank AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main ("DZ"), andKeyBank National Association ("KeyBank") which permits maximum outstanding financings of up to$80.0 million and provides for an advance rate of 80% with respect to VOI receivables securing amounts financed. TheKeyBank /DZ Purchase Facility's advance period will expire inDecember 2022 and will mature and all outstanding amounts will become due 24 months after the revolving advance period has expired, or earlier under certain circumstances set forth in the facility. Interest on amounts outstanding under the facility is tied to an applicable index rate of the LIBOR rate, in the case of amounts funded byKeyBank , and a cost of funds rate or commercial paper rates, in the case of amounts funded by or through DZ. The interest rate under the facility is the applicable index rate plus 2.25% until the expiration of the revolving advance period and thereafter will equal the applicable index rate plus 3.25%. Subject to the terms of the facility, we will receive the excess cash flows generated by the VOI notes receivable sold (excess meaning after payments of customary fees, interest and principal under the facility) until the expiration of the VOI notes receivable advance period, at which point all of the excess cash flow will be paid to the note holders until the outstanding balance is reduced to zero. While ownership of the VOI notes receivable included in the facility is transferred and sold for legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse. 51
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Quorum Purchase Facility.Bluegreen/Big Cedar Vacations has a VOI notes receivable purchase facility (the "Quorum Purchase Facility") withQuorum Federal Credit Union ("Quorum"), pursuant to which Quorum has agreed to purchase eligible VOI notes receivable in an amount of up to an aggregate$50.0 million purchase price, subject to certain conditions precedent and other terms of the facility. OnMarch 17, 2020 , the Quorum Purchase Facility was amended to extend the advance period toDecember 2020 fromJune 2020 . The interest rate on each advance is set at the time of funding based on rates mutually agreed upon by the parties. The Quorum Purchase Facility will mature inDecember 2032 . Of the amounts outstanding under the Quorum Purchase Facility atSeptember 30, 2020 ,$2.4 million accrues interest at a rate per annum of 4.75%,$16.4 million accrues interest at a fixed rate of 4.95%,$1.3 million accrues interest at a fixed rate of 5.00%,$13.2 million accrues interest at a fixed rate of 5.10%, and$0.8 million accrues interest at a fixed rate of 5.50%. The Quorum Purchase Facility provides for an 85% advance rate on eligible receivables sold under the facility, however Quorum can modify this advance rate on future purchases subject to the terms and conditions of the Quorum Purchase Facility. Eligibility requirements for VOI notes receivable sold include, among others, that the obligors under the VOI notes receivable sold be members of Quorum at the time of the note sale. Subject to performance of the collateral, we orBluegreen/Big Cedar Vacations , as applicable, will receive any excess cash flows generated by the VOI notes receivable transferred to Quorum under the facility (excess meaning after payment of customary fees, interest and principal under the facility) on a pro-rata basis as borrowers make payments on their VOI notes receivable. While ownership of the VOI notes receivable included in the Quorum Purchase Facility is transferred and sold for legal purposes, the transfer of these VOI notes receivable is accounted for as a secured borrowing for financial reporting purposes. The facility is nonrecourse.
Other Credit Facilities
Fifth Third Syndicated Line-of-Credit and Fifth Third Syndicated Term Loan. InDecember 2016 , we entered into a$100.0 million syndicated credit facility withFifth Third Bank , as administrative agent and lead arranger, and certain other bank participants as lenders. InOctober 2019 , we amended the facility and increased the facility to$225.0 million . The amended facility includes a$100.0 million term loan (the "Fifth Third Syndicated Term Loan") with quarterly amortization requirements and a$125.0 million revolving line of credit (the "Fifth Third Syndicated Line-of-Credit"). Borrowings under the amended facility generally bear interest at LIBOR plus 2.00% - 2.50%, depending on our leverage ratio, are collateralized by certain of our VOI inventory, sales center buildings, management fees, short-term receivables and cash flows from residual interests relating to certain term securitizations, and will mature inOctober 2024 . OnJune 29, 2020 , the facility was amended to modify the of certain customary covenants. As ofSeptember 30, 2020 , outstanding borrowings under the facility totaled$145.0 million , including$95.0 million under the Fifth Third Syndicated Term Loan with an interest rate of 2.56%, and$50.0 million under the Fifth Third Syndicated Line of Credit with an interest rate of 2.39%.
We also have outstanding obligations under various credit facilities and securitizations that have no remaining future availability as the advance periods have expired.
Commitments
Our material commitments include the required payments due on our
receivable-backed debt, lines-of-credit and other notes payable, junior
subordinated debentures, commitments to complete certain projects based on our
sales contracts with customers, subsidy advances to certain HOAs, inventory
purchase commitments under JIT arrangements and commitments under non-cancelable
operating leases.
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The following table summarizes the contractual minimum principal and interest payments required on all of our outstanding debt, non-cancelable operating leases and inventory purchase commitments by period due date, as ofSeptember 30, 2020 (in thousands): Payments Due by Period Unamortized Less than 1 - 3 4 - 5 After 5 ? Debt Issuance Contractual Obligations ?1 year ?Years ?Years ?Years ?Costs Total Receivable-backed notes payable (1) $ - $ -$ 118,531 $ 266,327 $ (4,140)$ 380,718 Lines-of-credit and notes payable 11,300 25,673 125,000 - (1,302) 160,671 Jr. subordinated debentures (2) - - - 110,827 - 110,827 Noncancelable operating leases (3) 6,027 9,592 2,832 11,412 - 29,863 Bass Pro Settlement (4) 4,000 8,000 4,000 - - 16,000 Total contractual obligations 21,327 43,265 250,363 388,566 (5,442) 698,079
Interest Obligations (5)
Receivable-backed notes payable 13,145 26,291 23,137 64,177 - 126,750 Lines-of-credit and notes payable 4,047 6,991 3,162 - - 14,200 Jr. subordinated debentures 5,697 11,395 11,395 59,096 - 87,583 Total contractual interest 22,889 44,677 37,694 123,273 - 228,533 Total contractual obligations$ 44,216 $ 87,942 $ 288,057 $ 511,839
$ (5,442)
(1)Does not reflect payments due in accordance with the
(2)Amounts do not include purchase accounting adjustments for junior
subordinated debentures of
(3)Amounts represent the cash payment for leases and include interest of
(4)Amounts represent the
(5)Assumes that the scheduled minimum principal payments are made in accordance with the table above and the interest rate on variable rate debt remains the same as the rate atSeptember 30, 2020 .
In
In lieu of paying maintenance fees for unsold VOI inventory, we may enter into subsidy agreements with certain HOAs. During the nine months endedSeptember 30, 2020 and 2019, we made payments related to such subsidies of$7.7 million and$10.5 million , respectively, which are included in cost of other fee-based services in the unaudited consolidated statements of operations and comprehensive income for such periods. As ofSeptember 30, 2020 , we had$10.1 million accrued for such subsidies, which is included in accrued liabilities and other in the unaudited consolidated balance sheet as of such date. We intend to use cash on hand and cash flow from operations, including cash received from the sale or pledge of VOI notes receivable, and cash received from new borrowings under existing or future credit facilities in order to satisfy the principal payments required on contractual obligations. We believe that our existing cash, anticipated cash generated from operations, anticipated future permitted borrowings under existing or future credit facilities, and anticipated future sales of notes receivable under existing, future or replacement purchase facilities will be sufficient to meet our anticipated working capital, capital expenditure and debt service requirements, including the contractual payment of the obligations set forth above, for the foreseeable future, subject to the success of our ongoing business strategies, the ongoing availability of credit and the success of the actions we have taken in response to the COVID-19 pandemic to mitigate the impact of the pandemic. We will continue our efforts to renew, extend or replace any credit and receivables purchase facilities that have expired or that will expire in the near term. We may, in the future, also obtain additional credit facilities and may issue corporate debt or equity securities. Any debt incurred or issued
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may be secured or unsecured, bear interest at fixed or variable rates and may be subject to such terms as the lender may require and management believes acceptable. There can be no assurance that our efforts to renew or replace credit facilities or receivables purchase facilities which have expired or which are scheduled to expire in the near term will be successful or that sufficient funds will be available from operations or under existing, proposed or future revolving credit or other borrowing arrangements or receivables purchase facilities to meet our cash needs, including debt service obligations. To the extent we are unable to sell notes receivable or borrow under such facilities, our ability to satisfy our obligations would be materially adversely affected. Our receivables purchase facilities, credit facilities, indentures and other outstanding debt instruments include what we believe to be customary conditions to funding, eligibility requirements for collateral, cross-default and other acceleration provisions and certain financial and other affirmative and negative covenants, including, among others, limits on the incurrence of indebtedness, payment of dividends, investments in joint ventures and other restricted payments, the incurrence of liens and transactions with affiliates, as well as covenants concerning net worth, fixed charge coverage requirements, debt-to-equity ratios, portfolio performance requirements and cash balances, and events of default or termination. In the future, we may be required to seek waivers of such covenants, but may not be successful in obtaining waivers, and such covenants may limit our ability to raise funds, sell receivables or satisfy or refinance our obligations, or otherwise adversely affect our financial condition and results of operations, as well as our ability to pay dividends. DuringApril 2020 , our board of directors suspended regular quarterly cash dividends on our common stock due to the impact of the COVID-19 pandemic. While we paid a special dividend duringAugust 2020 , no regular or any other special cash dividends are currently anticipated. In addition, our future operating performance and ability to meet our financial obligations will be subject to future economic conditions and to financial, business and other factors, many of which may be beyond our control. Pursuant to a settlement agreement we entered into with Bass Pro and its affiliates duringJune 2019 , we paid Bass Pro$20.0 million and agreed to make five annual payments to Bass Pro of$4.0 million , which commenced inJanuary 2020 . Additionally, in lieu of the previous commission arrangement, we agreed to pay Bass Pro a fixed annual fee of$70,000 for each Bass Pro andCabela's retail store that we are accessing (excluding sales at retail stores which are designated to provide tours toBluegreen/Big Cedar Vacations , or "Bluegreen/Big Cedar feeder stores"), plus$32.00 per net vacation package sold (less cancellations or refunds within 45 days of sale). We also agreed to contribute to theWonders of Wildlife Foundation $5.00 per net package sold (less certain cancellations and refunds within 45 days of sale), subject to an annual minimum of$700,000 . Subject to the terms and conditions of the settlement agreement, we are generally required to pay the fixed annual fee with respect to at least 59 Bass Pro retail stores and a minimum number ofCabela's retail stores that increases over time to a total of at least 60Cabela's retail stores by the end of 2021. InJanuary 2020 , we paid$5.2 million for this fixed fee, of which$1.3 million was prepaid and is included in our unaudited consolidated balance sheet as ofSeptember 30, 2020 . We had marketing operations at 26Cabela's stores atSeptember 30, 2020 and are required to begin marketing operations in at least 14 more stores byDecember 31, 2020 . Notwithstanding the foregoing, the minimum number of Bass Pro andCabela's retail stores for purposes of the fixed annual fee may be reduced under certain circumstances set forth in the agreement, including as a result of a reduction of traffic in the stores in excess of 25% year-over-year. InMarch 2020 as a result of the COVID-19 pandemic, we temporarily closed our retail marketing operations atBass Pro Shops andCabela's stores. Beginning inmid-May 2020 , we started the process of recommencing our sales and marketing operations and bySeptember 30, 2020 , we recommenced our marketing operations at 87Bass Pro Shops andCabela's stores and commenced marketing operations at 5 newCabela's stores. Additionally, inOctober 2020 , we recommenced marketing operations in one additional Bass Pro Shop and commenced marketing operations at 4 newCabela's stores for a total of 97Bass Pro Shops andCabela's stores.
Off-balance-sheet Arrangements
As ofSeptember 30, 2020 , we did not have any "off-balance sheet" arrangements. ? 54
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