Disney assumes Citi loans

During one of the worst economic declines since Disney's Magic Kingdom park opened in 1971, seven percent of time-share owners have been defaulting on loans mortgaged by Citigroup.

In an effort to preserve relationships with quality customers that foreclosed, Disney has elected to assume asset-backed-securities from Citigroup so that it could manage foreclosure proceedings. Disney's large coffers have enabled it to assume more than $200 million in liability from colossal bank Citigroup.

Since Citigroup has no real interest in time-shares, Disney has reacquired vacation Club liability avoiding a 3rd party from underselling the market at Celebration. An approximated $40 million in sales profit from these time-shares was generated by the Vacation Club in 2008.

Securitization, a lucrative business for the Celebration based Disney Vacation Club, requires bundling time-share mortgages and issuing them to buyers. Unfortunately, Citigroup's woes in 2008 prevented the purchase of these securities due to the credit market.

In the eventuality of foreclosure, Disney assumed up to 18% of the principle in it's agreement with Citygroup representing roughly $76 million in value. As defaulted loans have risen to 8%, the burden on Disney has diminished it's ability to reacquire loans in foreclosure. According to industry-wide statistics, defaults have increased to 31% in the 1st quarter of 2009.

Question remains how long Disney can continue to assure top-quality service to the Vacation Club members without risk of being cash-strapped.