With more and more timeshare buyers defaulting on their loans, the Walt Disney Co. recently assumed more than $200 million in additional liability to preserve a credit agreement between its timeshare subsidiary and Citigroup.

The agreement requires Disney Vacation Club to bundle together timeshare mortgages that it issued to buyers and sell then to Citi. In recent years, this securitization process has been a solid source of revenue for Disney, garnering an estimated $40million worth of operating profit for the unit during the 2008 fiscal year.

Citi stopped purchasing mortgages from Disney last December due to tight credit market conditions bought by the recession. According to regulatory documents, the bank currently owns around $422 million worth of Vacation Club loans.

The original deal stipulated that Disney was responsible for some of the losses if buyers defaulted on the loans that have already been sold to Disney. Earlier terms demanded an 18 percent cover up from Disney from the principal amount in the event of losses.

Under the revised agreement, which was negotiated this year, Disney agreed to backstop losses of as much as 70 percent of the outstanding principal of loans. The amount is eaqual to $295 million.

Source: Orlando Sentinel