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To: Grommit who wrote (25)	5/25/1999 11:46:00 AM
From: Michael Burry	Respond to of 55

To me, it appears that their cash return on invested capital is much less than their cost. Because they book the full sales price as revenues, they are very front-loaded. Because the main way they generate cash is by borrowing against receivables, and cannot borrow the full amount of the receivables, the amount of cash capital they generate is necessarily going to be less than what they had the previous year unless they dip into long-term debt or other liabilities. SVR did this last year, borrowing 75 million at an expensive 10+% to fuel the 89% jump in revenues, 90% of which were not collected. Without additional financing, sales will spiral downward. That 20% growth figure to me is not a long-term figure. The longest-term growth rate is zero for SVR. At some point, if management is prudent, given the potential cyclicality of the business, the building of VOIs stops and we get the spread on the 14+% interest rates they charge vs. the avg 9.x% that they are charged, in addition to management fees. And that's likely on a big receivables load. That spread then expires over 7-10 years. The net of it is that this shouldn't be valued as a growth story and that the balance sheet/net asset value should be the tool of valuation. So the valuation here lies in the balance sheet. That said, I still see it very cheap. I think the market has already seen this and has told us very firmly that there is no growth story here, when it pairs 89% revenue growth to a PE of 5. But I also think because of this SVR has perhaps been overpunished. It is indeed an interesting valuation. Mike

To: Grommit who wrote (25)	5/25/1999 12:05:00 PM
From: Michael Burry	Respond to of 55

"I think you could do this for most any business and say that the cannot afford to fund their growth. " "Very rarely do I hear the argument that financing is the constraint for growing a profitable company." IMO, it appears that some businesses are consistently unable to get cash out of their business (and hence need financing or the entire sum of their operating cash flow to grow) in the name of building up to a certain level of business, but in the end they are putting in place some long-lived revenue-generating assets. In those instances it is appropriate to look at EBITDA, perhaps. But not here. With SVR, they are selling these VOIs, and get very little revenue from them after 7-10 years. In fact the sales price is counted the first year. And then for 7-10 years there's the interest and the management fees, and then thereafter there's really only management fees. And the sales must necessarily slow, unless there is further dilution of the capital base with additional LT debt. The lone exception might be a firm whose acquisition costs of VOIs is very, very low and sales price very very high. This is where the increasing marketing costs, increasing cost of VOI for SVR, and increasing debt costs due to the addition of longer term instruments, becomes a problem, and why they are so signficant. Mike