| DEBT OBLIGATIONS |
10. DEBT OBLIGATIONS
The following table presents certain information regarding Newcastle’s debt obligations and related hedges at March 31, 2014:
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March 31, 2014
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Collateral
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Aggregate
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Debt Obligation/Collateral
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Month Issued
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Outstanding
Face
Amount
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Carrying
Value
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Final Stated Maturity
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Weighted
Average
Coupon (A)
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Weighted Average
Funding
Cost (B)
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Weighted Average Life(Years)
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Face Amount of
Floating Rate Debt
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Outstanding Face Amount (C)
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Amortized
Cost Basis (C)
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Carrying
Value (C)
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Weighted Average Life
(Years)
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Floating Rate Face Amount (C)
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Notional
Amount of Current Hedges (D)
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CDO Bonds Payable
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CDO VI (E)
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Apr 2005
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$
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92,127
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$
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92,127
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Apr 2040
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0.83%
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5.35
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%
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5.8
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$
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88,782
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$
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163,128
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$
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88,930
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$
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125,858
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2.1
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$
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39,662
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$
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88,782
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CDO VIII
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Nov 2006
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190,341
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190,076
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Nov 2052
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1.07%
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3.87
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%
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1.3
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182,741
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341,619
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245,154
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275,210
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2.2
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140,043
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104,662
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CDO IX
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May 2007
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125,317
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126,610
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May 2052
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0.59%
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0.52
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%
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1.3
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125,317
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372,597
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306,412
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316,729
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2.4
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148,646
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—
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407,785
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408,813
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3.17
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%
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2.3
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396,840
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877,344
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640,496
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717,797
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2.3
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328,351
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193,444
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Other Bonds and Notes Payable
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MH Loans Portfolio I (F)
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Apr 2010
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50,448
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47,234
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Jul 2035
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6.65%
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6.65
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%
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4.1
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—
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98,925
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89,113
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89,113
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6.0
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555
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—
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MH Loans Portfolio II
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May 2011
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88,785
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88,524
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Dec 2033
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4.79%
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4.79
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%
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3.8
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—
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123,611
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123,277
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123,277
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4.8
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20,310
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—
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NCT 2013-VI IMM-1 (G)
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Nov 2013
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94,138
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85,547
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Apr 2040
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LIBOR+0.25%
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0.40
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%
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1.9
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94,138
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—
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—
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—
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—
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—
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—
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233,371
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221,305
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3.49
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%
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3.1
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94,138
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222,536
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212,390
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212,390
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5.3
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20,865
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—
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Repurchase Agreements (H)
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CDO securities (G)
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Dec 2013
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49,500
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49,500
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Apr 2014
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LIBOR+1.65%
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1.80
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%
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0.1
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49,500
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—
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—
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—
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—
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—
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—
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Residential Mortgage Loans
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Nov 2013
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25,363
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25,363
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Nov 2014
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LIBOR+2.00%
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2.15
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%
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0.6
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25,363
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35,074
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25,665
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25,665
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5.4
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35,074
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—
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74,863
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74,863
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1.92
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%
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0.3
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74,863
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35,074
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25,665
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25,665
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5.4
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35,074
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—
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Mortgage Notes Payable
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Fixed Rate - Managed Properties
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158,601
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158,751
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Aug 2018 to
Mar 2020
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1.56% to 4.12%
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(I) (J)
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4.50
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%
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5.0
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—
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N/A
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186,985
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186,985
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N/A
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N/A
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—
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Floating Rate - Managed Properties
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215,828
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215,828
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Aug 2016 to Jan 2019
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LIBOR +3.50% to LIBOR+3.75%
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4.81
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%
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3.9
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215,828
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N/A
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291,556
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291,556
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N/A
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N/A
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—
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Fixed Rate - Triple Net Lease Properties
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717,244
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717,244
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Jan 2024
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4.15%
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4.77
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%
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7.6
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—
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N/A
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987,094
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987,094
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N/A
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N/A
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—
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1,091,673
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1,091,823
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4.74
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%
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6.5
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215,828
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N/A
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1,465,635
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1,465,635
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N/A
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N/A
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—
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Golf Credit Facilities (K)
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First Lien Loan
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Dec 2013
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46,922
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46,922
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Dec 2018
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LIBOR+4.00%
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(L)
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4.50
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%
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3.8
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46,922
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N/A
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—
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—
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N/A
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N/A
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—
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Second Lien Loan
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Dec 2013
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105,576
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105,576
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Dec 2018
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5.50%
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5.50
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%
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3.8
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—
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N/A
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—
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—
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N/A
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N/A
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—
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Vineyard I
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Dec 1993
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263
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263
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Aug 2014
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11.37%
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11.37
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%
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0.4
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263
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N/A
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—
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—
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N/A
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N/A
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—
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Vineyard II
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Dec 1993
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200
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200
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Dec 2043
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2.13%
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2.13
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%
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29.7
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200
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N/A
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—
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—
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N/A
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N/A
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—
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152,961
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152,961
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5.20
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%
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3.8
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47,385
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N/A
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—
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—
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N/A
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N/A
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—
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Corporate
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Junior subordinated notes payable
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Mar 2006
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51,004
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51,236
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Apr 2035
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7.57%
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(M)
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7.39
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%
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21.1
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—
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—
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—
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—
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—
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—
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—
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51,004
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51,236
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7.39
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%
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21.1
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—
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—
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—
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—
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—
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—
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—
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Subtotal debt obligations
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2,011,657
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2,001,001
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4.28
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%
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5.2
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$
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829,054
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$
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1,134,954
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$
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2,344,186
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$
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2,421,487
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3.0
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$
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384,290
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$
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193,444
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Financing on subprime mortgage loans subject to call option (N)
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406,217
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406,217
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Total debt obligations
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$
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2,417,874
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$
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2,407,218
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(A)
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Weighted average, including floating and fixed rate classes.
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(B)
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Including the effect of applicable hedges and deferred financing cost.
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(C)
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Excluding (i) restricted cash held in CDOs to be used for principal and interest payments of CDO debt, and (ii) operating cash from the senior housing business.
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(D)
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Including the $88.8 million portion of the notional amount of interest rate swap in CDO VI, which acted as an economic hedge that was not designated as a hedge for accounting purposes.
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(E)
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This CDO was not in compliance with its applicable over collateralization tests as of March 31, 2014. Newcastle is not receiving cash flows from this CDO (other than senior management fees and cash flows on senior classes of bonds that were repurchased), since net interest is being used to repay debt, and expects this CDO to remain out of compliance for the foreseeable future.
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(F)
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Excluding $20.5 million of other bonds payable relating to MH loans Portfolio I sold to certain Newcastle CDOs, which were eliminated in consolidation.
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(G)
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Represents refinancing of repurchased Newcastle CDO bonds where collateral is, therefore, eliminated in consolidation.
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(H)
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These repurchase agreements had less than $0.1 million of accrued interest payable at March 31, 2014. $74.9 million face amount of these repurchase agreements were renewed subsequent to March 31, 2014. The counterparties on these repurchase agreements are Bank of America ($49.5 million) and Credit Suisse ($25.4 million).
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(I)
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For loans totaling $41.2 million issued in August 2013, Newcastle bought down the interest rate to 4% for the first two years. Thereafter, the interest rate will range from 5.99% to 6.76%.
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(J)
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For a loan with a total balance of $11.4 million, the interest rate for the first two years is based on the applicable US Treasury Security rates. The interest rate for years 3 through 5 is 4.5%, 4.75% and 5.0%, respectively.
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(K)
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These facilities are collateralized by all of the assets of the golf business.
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(L)
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Interest rate on this is based on 3 month LIBOR with a LIBOR floor of 0.5%.
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(M)
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Issued in April 2006 and July 2007 and secured by the general credit of Newcastle. See Note 6 regarding the securitizations of Subprime Portfolio I and II.
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(N)
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LIBOR +2.25% after April 2016.
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Each CDO financing is subject to tests that measure the amount of over collateralization and excess interest in the transaction. Failure to satisfy these tests would cause the principal and/or interest cashflow that would otherwise be distributed to more junior classes of securities (including those held by Newcastle) to be redirected to pay down the most senior class of securities outstanding until the tests are satisfied. As a result, Newcastle’s cash flow and liquidity are negatively impacted upon such a failure. As of March 31, 2014, CDO VI was not in compliance with its over collateralization tests. Based upon Newcastle's current calculations, Newcastle expects this CDO to remain out of compliance for the foreseeable future.
As of March 31, 2014, Newcastle has unused borrowing capacity of $7.5 million on the golf credit facilities.
Newcastle’s non-CDO financings, mortgage notes payable and golf credit facilities contain various customary loan covenants. Newcastle was in compliance with all of these covenants as of March 31, 2014.
In June 2013, Newcastle completed the purchase of $116.8 million aggregate face amount of securities that are collateralized by certain Newcastle CDO VIII Class I notes for an aggregate purchase of approximately $103.1 million, or an average price of 88.3% of par. Simultaneously, Newcastle financed the purchase with $60.0 million received pursuant to a master repurchase agreement with the seller of the securities (“CDO VIII Repack”). The terms of the repurchase agreement included a rate of one-month LIBOR plus 150 bps and a 30-day maturity. The repurchase agreement includes various customary default events, including a default if Newcastle’s market capitalization declines by 50% from the market capitalization observed at the last trading day of the previous quarter. An event of default under the master repurchase agreement, if one occurs, would require Newcastle to immediately pay off the outstanding debt or the lender would have the right to liquidate the collateral. The purchase of the securities and the repurchase agreement are treated as a linked transaction and accordingly recorded on a net basis as a non-hedge derivative instrument, with changes in market value recorded on the statement of income. During the three months ended March 31, 2014, there was a $9.7 million decrease in the carrying value of the CDO VIII Repack (see Note 12).
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