| DEBT OBLIGATIONS |
10. DEBT
OBLIGATIONS
The following table presents certain information regarding Newcastle’s debt obligations and related hedges at September 30, 2014:
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September 30, 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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92,349
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$
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92,349
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Apr 2040
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0.84%
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5.36
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%
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5.2
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$
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88,894
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$
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156,016
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$
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89,826
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$
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123,941
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2.6
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$
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34,221
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$
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130,342
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CDO VIII
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Nov 2006
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71,813
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71,770
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Nov 2052
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2.12%
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6.55
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%
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2.3
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64,213
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226,441
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160,931
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175,216
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2.2
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89,874
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83,673
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CDO IX
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May 2007
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65,671
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66,739
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May 2052
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0.72%
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0.18
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%
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1.6
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65,671
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297,120
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238,374
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248,189
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2.5
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64,489
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—
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229,833
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230,858
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4.23
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%
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3.3
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218,778
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679,577
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489,131
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547,346
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2.4
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188,584
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214,015
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Other Bonds and Notes Payable
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NCT 2013-VI IMM-1 (F)
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Nov 2013
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88,223
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82,063
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Apr 2040
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LIBOR+0.25%
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5.86
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%
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1.7
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88,223
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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88,223
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82,063
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5.86
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%
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1.7
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88,223
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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Repurchase Agreements (G)
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CDO securities (F)
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Dec 2013
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63,804
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63,804
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Oct 2014
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LIBOR+1.65%
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1.81
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%
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0.1
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63,804
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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63,804
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63,804
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1.81
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%
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0.1
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63,804
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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Mortgage Notes Payable
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Fixed Rate - Managed Properties
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157,393
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158,037
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Aug 2018 to
Mar 2020
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1.66% to 4.93%
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(H) (I)
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4.84
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%
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4.6
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N/A
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N/A
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180,655
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180,655
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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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278,549
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278,549
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Aug 2016 to
Sept 2019
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LIBOR +2.75% to LIBOR+3.75%
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(J)
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4.55
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%
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3.6
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278,549
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N/A
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366,598
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366,598
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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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711,422
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711,422
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Jan 2021 to Jan 2024
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3.83% to 8.00%
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(K)
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5.10
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%
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7.3
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N/A
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N/A
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962,489
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962,489
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N/A
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N/A
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—
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1,147,364
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1,148,008
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4.93
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%
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6.0
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278,549
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N/A
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1,509,742
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1,509,742
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N/A
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N/A
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—
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Golf Credit Facilities (L)
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First Lien Loan
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Dec 2013
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49,923
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49,923
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Dec 2018
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LIBOR+4.00%
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(M)
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4.50
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%
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3.3
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49,923
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N/A
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N/A
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N/A
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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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105,575
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105,575
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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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3.3
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—
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N/A
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N/A
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N/A
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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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29.2
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200
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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Capital Leases (Equipment)
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May-Sep 2014
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4,994
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4,994
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Mar 2020
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5.25%
to 7.15%
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6.96
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%
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5.5
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—
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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160,692
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160,692
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5.25
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%
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3.4
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50,123
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N/A
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N/A
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N/A
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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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51,233
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Apr 2035
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7.57%
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(N)
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7.36
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%
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20.6
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—
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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51,004
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51,233
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7.36
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%
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20.6
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—
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N/A
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N/A
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N/A
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N/A
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N/A
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—
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Subtotal debt obligations
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1,740,920
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1,736,658
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4.87
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%
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5.4
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$
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699,477
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$
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679,577
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$
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1,998,873
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$
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2,057,088
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2.4
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$
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188,584
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$
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214,015
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Financing on subprime mortgage loans subject to call option (O)
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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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2,147,137
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$
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2,142,875
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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. For fixed rate mortgage notes payable, the weighted average funding cost is calculated based on the average rate during the nine months ended September 30, 2014.
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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 $130.3 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 September 30, 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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Represents financings of previously repurchased Newcastle CDO bonds for which the collateral is eliminated in consolidation.
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(G)
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These repurchase agreements had less than $0.1 million of accrued interest payable at September 30, 2014. $63.8 million face amount of these repurchase agreements were renewed subsequent to September 30, 2014. The counterparty on these repurchase agreements is Bank of America ($63.8 million). Newcastle has margin exposure on a $63.8 million repurchase agreement related to the financing of certain Newcastle CDO VIII and CDO IX notes. To the extent that the value of the collateral underlying these repurchase agreements declines, Newcastle may be required to post margin, which could significantly impact its liquidity.
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(H)
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For loans totaling $40.7 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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(I)
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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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(J)
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$165.0 million of the floating rate mortgages have a LIBOR floor of 1.0%.
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(K)
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For loans with a total balance $358.4 million and $313.5 million, Newcastle bought down the interest rate to 4.00% and 3.83%, respectively, until January 2019. Thereafter, the interest rates will increase to 4.99% and 4.56%, respectively.
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(L)
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The golf credit facilities are collateralized by all of the assets of the golf business.
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(M)
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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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(N)
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LIBOR +2.25% after April 2016.
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(O)
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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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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 September 30, 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.
In July 2014, Newcastle financed an additional $20.0 million face amount of previously repurchased CDO bonds payable with repurchase agreements for $12.0 million. These repurchase agreements bear interest at one month LIBOR + 1.65%, mature in August 2014 and are subject to customary margin provisions.
As of September 30, 2014, Newcastle has unused borrowing capacity of $4.6 million on the golf credit facilities.
The Golf business leases equipment under capital lease agreements. The agreements normally provide for minimum rentals plus executory costs. Lease terms are 66 months with a purchase price option at the termination of the lease.
The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of September 30, 2014 are as follows:
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October 1, 2014 - December 31, 2014
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$
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260
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2015
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1,041
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2016
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1,041
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2017
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1,041
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2018
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1,041
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2019 and thereafter
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1,670
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Total minimum lease payments
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6,094
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Less: imputed interest
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1,100
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Present value of net minimum lease payments
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$
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4,994
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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 September 30, 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 purchase of the securities and the repurchase agreement were 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. In May 2014, the CDO VIII Class I notes were repaid in full and the repurchase agreement was terminated.
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