On May 28th, Wyndham Worldwide sold $225 million dollars worth of notes backed by their timeshare assets to Parsippany, a New Jersey based company. Because of the sale, Wyndham stocks gained 26 points, or 2.3 percent, rising to $11.54 a share during afternoon trading on the 29th. The stock plummeted to only $2.55 months ago, and the highest it has been at in the past year was $22.28 a share.
Each note that was sold is backed by vacation ownership that are properties of Wyndham and its subsidiaries. For the past year the market for timeshare-backed securities has basically been closed, with little if any investor interested in purchasing them. So it was a great deal for Wyndham to be able to make this sale. The timeshare business has always been particularly reliant on timeshare based securities to fund new timeshare developments, and so Wyndham was very happy about the sale. Many financial analysts are heralding the sale to Parsippany as a marker of a revival in the market for asset-backed securities.
While this is good news for Wyndham in the short term, in the long run, timeshare ownership is still a rather risky investment, and that is exactly because of the timeshare market’s high reliance on asset-based securities. Thus, the deal with Parsippany is not necessarily the safest way of securing Wyndham’s future and stability.
Asset-based securities are one of the least financially-sound types of investments, and have proved in the past few years to be really dangerous to the economy as a whole. In 2002, there was an odd financial situation in which there were many investors willing to lend out money, but few businesses that needed the extra cash. Because of this, many of these investors sought out new markets to invest in, some of which yielded high interest rates, but were high risk. This is how asset-based security investments were developed.
One market investors could invest in was the sub-prime housing market. The recent deregulation and liberalization of banking and financial institutions was allowing people, who never would have qualified previously, to get loans. Investors split the risk of lending to these less creditworthy borrowers by slicing up and recombining these loans with other investments. That way, when people defaulted on their loans, the loss was split between several different investors instead of hugely burdening one investor. At the time, many fund managers and leaders of investment firms were under a lot of pressure to meet quarterly targets and find areas in which to invest. This focus on short-term gains led many to make investing decisions that were actually detrimental to the company’s sustainable growth in the long-term. And in the long run, many of these investments have gone sour with countless home buyers defaulting on their loans and experiencing bankruptcy.
Asset-based securities have largely contributed to the financial problems that the United States and countries throughout the world are experiencing today. So for Wyndham to choose to continue to attempt to appeal to these types of investors is merely prolonging the larger problem. It is obvious that Wyndham is hoping that their decision to sell notes backed by timeshare assets will gain them positive press, and create more hope in investors in the short term. In such a dreary market, companies are doing anything they can in order to appear like business is growing instead of failing. This is obvious by the fact that Wyndham was able to announce to its Board of Directors that there was a cash dividend of $0.04 per share on its common stock, payable to shareholders June 12, 2009.
After all, with all of the drama in the boardroom several months ago with Wyndham stockholders trying to replace the Chairman by an Independent Director and the company’s CEO taking a 17% cut on his bonuses, the company is doing everything they can to keep investors and stockholders from bailing. And for most people, this short-term fix with Parsippany should help a little.
But, if you are looking into investing in timeshares, you should re-think your plans. Choose an investment with more moderate returns that is safer. Any part of the market that relies so hugely on securitization is going to be less stable and experience problems generating long-term growth. If no changes are made in the government to regulate and reform the way that banking institutions can use people’s money, requiring them to have a certain amount of the money backed up, insecure trading ventures such as asset-based securities will continue to cause larger and larger problems later. And the timeshare market, heavily dependent on asset-based securities, will always be a sector of the market that will fall fastest and hardest as a result of these problems.
About the Author: The timeshare experts at Apex Professionals, LLC, concentrate on helping disillusioned timeshare holders to rid themselves of unwanted maintenance fees, unnecessary assessment costs, and to do away with those annoying high-interest mortgages by offering to take over unwanted timeshare agreements instantly. Related posts:
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