|COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we enter into various commitments, guarantees, surety bonds, and letter of credit agreements.
Commitments—At March 31, 2021, we are committed, under certain conditions, to lend or provide certain consideration to, or invest in, various business ventures up to $335 million, net of any related letters of credit.
Performance Guarantees—Certain of our contractual agreements with third-party hotel owners require us to guarantee payments to the owners if specified levels of operating profit are not achieved by their hotels. At March 31, 2021, the remaining maximum exposure under our performance guarantees was $41 million. Our most significant performance guarantee, relating to four managed hotels in France, expired on April 30, 2020.
We had $14 million and $16 million of total performance guarantee liabilities at March 31, 2021 and December 31, 2020, respectively, which included $6 million recorded in other long-term liabilities for both periods and $8 million and $10 million recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets, respectively.
|Four managed hotels in France||Other performance guarantees||All performance guarantees|
|Beginning balance, January 1||$||— ||$||20 ||$||16 ||$||13 ||$||16 ||$||33 |
|Initial guarantee obligation liability||— ||— ||1 ||— ||1 ||— |
|Amortization of initial guarantee obligation liability into income||— ||(4)||(1)||(1)||(1)||(5)|
|Performance guarantee expense, net||— ||20 ||1 ||6 ||1 ||26 |
|Payments during the period||— ||(15)||(3)||(3)||(3)||(18)|
|Ending balance, March 31||$||— ||$||21 ||$||14 ||$||15 ||$||14 ||$||36 |
Additionally, we enter into certain management contracts where we have the right, but not an obligation, to make payments to certain hotel owners if their hotels do not achieve specified levels of operating profit. If we choose not to fund the shortfall, the hotel owner has the option to terminate the management contract. At March 31, 2021 and December 31, 2020, we had $4 million and $3 million, respectively, recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets related to these performance cure payments.
Debt Repayment and Other Guarantees—We enter into various debt repayment and other guarantees in order to assist hotel owners and unconsolidated hospitality ventures in obtaining third-party financing or to obtain more favorable borrowing terms.
|Property description||Maximum potential future payments||Maximum exposure net of recoverability from third parties||Other long-term liabilities recorded at March 31, 2021||Other long-term liabilities recorded at December 31, 2020||Year of guarantee expiration|
|Hotel properties in India (1)||$||170 ||$||170 ||$||— ||$||— ||2021|
|Hotel properties in Tennessee (2)||56 ||26 ||7 ||8 ||various, through 2024|
|Hotel properties in California (2)||38 ||15 ||2 ||2 ||2021|
|Hotel property in Pennsylvania (2), (3)||28 ||11 ||1 ||1 ||various, through 2023|
|Hotel property in Massachusetts (2), (3) ||27 ||14 ||3 ||4 ||various, through 2022|
|Hotel properties in Georgia (2)||27 ||13 ||3 ||4 ||various, through 2024|
|Hotel property in Oregon (2)||21 ||8 ||1 ||1 ||2022|
|Other (2), (4)||21 ||8 ||3 ||5 ||various, through 2025|
|Total ||$||388 ||$||265 ||$||20 ||$||25 |
(1) Debt repayment guarantee is denominated in Indian rupees and translated using exchange rates at March 31, 2021. We have the contractual right to recover amounts funded from an unconsolidated hospitality venture, which is a related party. We expect our maximum exposure to be $85 million, taking into account our partner's 50% ownership interest in the unconsolidated hospitality venture. Under certain events or conditions, we have the right to force the sale of the properties in order to recover amounts funded.
(2) We have agreements with our unconsolidated hospitality venture partners, the respective hotel owners, or other third parties to recover certain amounts funded under the debt repayment guarantee; the recoverability mechanism may be in the form of cash or HTM debt security.
(3) In conjunction with the debt repayment guarantees, we are subject to completion guarantees whereby the parties agree to substantially complete the construction of the project by a specified date. In the event of default, we are obligated to complete construction using the funds available from the outstanding loan. Any additional funds paid by us are subject to partial recovery in the form of cash. At March 31, 2021, the maximum potential future payments and the maximum exposure net of recoverability from third parties are insignificant.
(4) If certain funding thresholds are met or if certain events occur, we have the ability to assume control of the property.
At March 31, 2021, we are not aware of, nor have we received notification that our unconsolidated hospitality ventures or hotel owners are not current on their debt service obligations where we have provided a debt repayment guarantee.
Guarantee Liabilities Fair Value—We estimated the fair value of our guarantees to be $44 million and $66 million at March 31, 2021 and December 31, 2020, respectively. Based on the lack of available market data, we have classified our guarantees as Level Three in the fair value hierarchy.
Insurance—We obtain commercial insurance for potential losses for general liability, workers' compensation, automobile liability, employment practices, crime, property, cyber risk, and other miscellaneous coverages. A portion of the risk is retained on a self-insurance basis primarily through a U.S.-based and licensed captive insurance company that is a wholly owned subsidiary of Hyatt and generally insures our deductibles and retentions. Reserve requirements are established based on actuarial projections of ultimate losses. Reserves for losses in our captive insurance company to be paid within 12 months are $36 million and $37 million at March 31, 2021 and December 31, 2020, respectively, and are recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Reserves for losses in our captive insurance company to be paid in future periods are $67 million at both March 31, 2021 and December 31, 2020 and are recorded in other long-term liabilities on our condensed consolidated balance sheets.
Collective Bargaining Agreements—At March 31, 2021, approximately 26% of our U.S.-based employees were covered by various collective bargaining agreements, generally providing for basic pay rates, working hours, other conditions of employment, and orderly settlement of labor disputes. Certain employees are covered by union-sponsored, multi-employer pension and health plans pursuant to agreements between us and various unions. Generally, labor relations have been maintained in a normal and satisfactory manner, and we believe our employee relations are good.
Surety Bonds—Surety bonds issued on our behalf were $49 million at March 31, 2021 and primarily relate to workers' compensation, taxes, licenses, construction liens, and utilities related to our lodging operations.
Letters of Credit—Letters of credit outstanding on our behalf at March 31, 2021 were $238 million, which relate to our ongoing operations, hotel properties under development in the U.S., collateral for estimated insurance claims, and securitization of our performance under our debt repayment guarantee associated with the hotel properties in India, which is only called on if we default on our guarantee. Of the letters of credit outstanding, $1 million reduces the available capacity under our revolving credit facility (see Note 9).
Capital Expenditures—As part of our ongoing business operations, expenditures are required to complete renovation projects that have been approved.
Other—We act as general partner of various partnerships owning hotel properties that are subject to mortgage indebtedness. These mortgage agreements generally limit the lender's recourse to security interests in assets financed and/or other assets of the partnership(s) and/or the general partner(s) thereof.
In conjunction with financing obtained for our unconsolidated hospitality ventures and certain managed hotels, we may provide standard indemnifications to the lender for loss, liability, or damage occurring as a result of our actions or actions of the other unconsolidated hospitality venture partners or respective hotel owners.
As a result of certain dispositions, we have agreed to provide customary indemnifications to third-party purchasers for certain liabilities incurred prior to sale and for breach of certain representations and warranties made during the sales process, such as representations of valid title, authority, and environmental issues that may not be limited by a contractual monetary amount. These indemnification agreements survive until the applicable statutes of limitation expire or until the agreed upon contract terms expire.
We are subject, from time to time, to various claims and contingencies related to lawsuits, taxes, and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under our current insurance programs, subject to deductibles. Although the ultimate liability for these matters cannot be determined at this point, based on information currently available, we do not expect the ultimate resolution of such claims and litigation to have a material effect on our condensed consolidated financial statements.
During the year ended December 31, 2018, we received a notice from the Indian tax authorities assessing additional service tax on our operations in India. We appealed this decision and do not believe a loss is probable, and therefore, we have not recorded a liability in connection with this matter. At March 31, 2021, our maximum exposure is not expected to exceed $18 million.