| FAIR VALUE |
12. FAIR
VALUE
Fair Value Summary
Table
The carrying values and fair values of Newcastle’s assets and liabilities at September 30, 2014 were as follows:
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Principal Balance or
Notional Amount
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Carrying
Value
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Estimated
Fair Value
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Fair Value Method (A)
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Weighted Average
Yield/Funding Cost (B)
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Weighted Average
Life (Years)
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Assets
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Financial instruments:
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Real estate securities, available-for-sale (C)*
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$
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386,557
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$
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310,639
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$
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310,639
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Broker quotations, counterparty quotations, pricing services, pricing models
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9.75
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%
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3.3
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Real estate related and other loans, held-for-sale, net
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324,048
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224,992
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239,701
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Broker quotations, counterparty quotations, pricing services, pricing models
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14.53
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%
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1.7
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Residential mortgage loans, held-for-sale, net
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4,686
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4,036
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4,317
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Broker/counterparty quotations
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7.74
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%
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1.7
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Subprime mortgage loans subject to call option (D)
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406,217
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406,217
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(D)
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(D)
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9.09
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%
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(D)
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Restricted cash (I)
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4,624
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4,624
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Cash and cash equivalents (I)
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257,584
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257,584
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Investments in senior housing real estate, net (H)
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1,582,477
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Investments in other real estate, net (H)
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245,510
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Intangibles, net (H)
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201,909
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Other investments (H)
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26,456
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Assets of discontinued operations (H)
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6,863
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Liabilities
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Financial instruments:
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CDO bonds payable (G)
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$
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229,833
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$
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230,858
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$
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127,254
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Pricing models
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4.23
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%
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3.3
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Other bonds and notes payable (G)
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88,223
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82,063
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82,070
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Broker quotations, pricing models
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5.86
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%
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1.7
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Repurchase agreements
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63,804
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63,804
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63,804
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Market comparables
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1.81
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%
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0.1
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Mortgage notes payable
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1,147,364
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1,148,008
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1,157,815
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Pricing models
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4.93
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%
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6.0
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Credit facilities and obligations under capital leases, golf
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160,692
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160,692
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160,692
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Pricing models
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5.24
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%
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3.4
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Financing of subprime mortgage loans subject to call option (D)
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406,217
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406,217
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(D)
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(D)
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9.09
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%
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(D)
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Junior subordinated notes payable
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51,004
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51,233
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31,833
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Pricing models
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7.36
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%
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20.6
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Interest rate swaps, treated as hedges (E)(F)*
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83,673
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2,852
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2,852
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Counterparty quotations
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N/A
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(E)
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Non-hedge derivatives (E)(F)*
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130,342
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1,676
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1,676
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Counterparty quotations
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N/A
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(E)
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Liabilities of discontinued
operations
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412
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*Measured at fair value on a recurring basis.
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(A)
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Methods are listed in order of priority. In the case of real estate securities and real estate related and other loans, broker quotations are obtained if available and practicable, otherwise counterparty quotations or pricing service valuations are obtained or, finally, internal pricing models are used. Internal pricing models are only used for (i) securities and loans that are not traded in an active market, and, therefore, have little or no price transparency, and for which significant unobservable inputs must be used in estimating fair value, or (ii) loans or debt obligations which are private and untraded.
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(B)
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The weighted average yield and weighted average funding cost are disclosed for financial instrument assets and liabilities, respectively.
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(C)
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Excludes eight CDO securities with a zero value, which had an aggregate face amount of $112.5 million.
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(D)
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Represents an option, not an obligation, to repurchase loans from Newcastle’s subprime mortgage loan securitizations (Note 6).
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(E)
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As of September 30, 2014, all derivative liabilities, which represent three interest rate swaps, were held within Newcastle’s nonrecourse structures. An aggregate notional balance of $214.0 million is subject to the credit risks of the respective CDO structures. As they are senior to all the debt obligations of the respective CDOs and the fair value of each of the CDOs’ total investments exceeded the fair value of each of the CDOs’ derivative liabilities, no credit valuation adjustments were recorded. Newcastle’s interest rate swap counterparties include Bank of America and Bank of New York Mellon. Newcastle’s derivatives are included in accounts payable, accrued expenses and other liabilities in the consolidated balance sheets.
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(F)
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Interest rate swaps, treated as hedges:
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Maturity
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Aggregate Notional Amount
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Weighted Average Fixed Pay Rate
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Aggregate Fair Value
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Interest rate swap agreements
which receive 1-Month LIBOR:
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April 2016
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$
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83,673
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5.04
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%
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$
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2,852
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Non-hedge derivatives:
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Maturity
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Aggregate Notional Amount
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Weighted Average Fixed Pay Rate
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Aggregate Fair Value
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Interest rate swap agreements
which receive 1-Month LIBOR:
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March 2015
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$
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130,342
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4.85
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%
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$
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1,676
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(G)
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Newcastle notes that the unrealized gain on the liabilities within such structures cannot be fully realized. Assets held within CDOs and other nonrecourse structures are generally not available to satisfy obligations outside of such financings, except to the extent Newcastle receives net cash flow distributions from such structures. Furthermore, creditors or beneficial interest holders of these structures have no recourse to the general credit of Newcastle. Therefore, Newcastle’s exposure to the economic losses from such structures is limited to its invested equity in them and economically their book value cannot be less than zero. As a result, the fair value of Newcastle’s net investments in these non-recourse financing structures is equal to the present value of their expected future net cash flows.
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(H)
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Newcastle has certain assets that are subject to measurement at fair value on a nonrecurring basis. For these assets, measurement at fair value in the period subsequent to their initial recognition is applicable if determined to be impaired. During the nine months ended September 30, 2014, Newcastle did not have any material impaired assets that were required to be measured at fair value.
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(I)
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The carrying value of these assets and liabilities approximates fair value.
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Valuation
Hierarchy
The methodologies used for valuing such instruments have been categorized into three broad levels, which form a hierarchy.
Level 1 - Quoted prices in active markets for identical instruments.
Level 2 - Valuations based principally on other observable market parameters, including
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•
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Quoted prices in active markets for similar instruments,
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•
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Quoted prices in less active or inactive markets for identical or similar instruments,
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•
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Other observable inputs (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates), and
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•
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Market corroborated inputs (derived principally from or corroborated by observable market data).
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Level 3 - Valuations based significantly on unobservable inputs.
Newcastle follows this hierarchy for its financial instruments measured at fair value on a recurring basis. The classifications are based on the lowest level of input that is significant to the fair value measurement.
Newcastle has various processes and controls in place to ensure that fair value is reasonably estimated. With respect to the broker and pricing service quotations, to ensure these quotes represent a reasonable estimate of fair value, Newcastle’s quarterly procedures include a comparison to quotations from different sources, outputs generated from its internal pricing models and transactions
Newcastle has completed with respect to these or similar securities, as well as on its knowledge and experience of these markets. With respect to fair value estimates generated based on Newcastle’s internal pricing models, Newcastle’s management validates the inputs and outputs of the internal pricing models by comparing them to available independent third party market parameters, where available, and models for reasonableness. Newcastle believes its valuation methods and the assumptions used are appropriate and consistent with other market participants. The board of directors has reviewed Newcastle’s process for determining the valuations of its investments based on information provided by the Manager and has concluded such process is reasonable and appropriate.
Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. For Newcastle’s investments in real estate securities, real estate related and other loans and residential mortgage loans categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs include the discount rates, assumptions relating to prepayments, default rates and loss severities. Significant increases (decreases) in any of the discount rates, default rates or loss severities in isolation would result in a significantly lower (higher) fair value measurement. The impact of changes in prepayment speeds would have differing impacts on fair value, depending on the seniority of the investment. Generally, a change in the default assumption is generally accompanied by directionally similar changes in the assumptions used for the loss severity and the prepayment speed.
The following table summarizes such financial assets and liabilities measured at fair value on a recurring basis at September 30, 2014:
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Principal Balance or
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Fair Value
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Notional Amount
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Carrying Value
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Level 2
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Level 3
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Total
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Assets
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Real estate securities, available-for-sale:
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CMBS
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$
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240,403
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$
|
206,085
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|
$
|
—
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$
|
206,085
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|
$
|
206,085
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REIT debt (A)
|
29,200
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30,293
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30,293
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|
—
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|
30,293
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Non-Agency RMBS
|
87,113
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|
60,231
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|
—
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|
60,231
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|
60,231
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|
ABS - other real estate
|
8,464
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|
—
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—
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|
|
—
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|
|
—
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CDO (B)
|
21,377
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13,721
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|
—
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|
13,721
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|
13,721
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Equity securities
|
—
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|
309
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|
—
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|
|
309
|
|
|
309
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|
Real estate securities total
|
$
|
386,557
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|
$
|
310,639
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$
|
30,293
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$
|
280,346
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$
|
310,639
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Liabilities
|
|
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Derivative Liabilities:
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Interest rate swaps, treated as hedges
|
$
|
83,673
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$
|
2,852
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|
$
|
2,852
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|
$
|
—
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|
|
$
|
2,852
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Interest rate swaps, not treated as hedges
|
130,342
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|
1,676
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|
1,676
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—
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|
1,676
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Derivative liabilities total
|
$
|
214,015
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$
|
4,528
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$
|
4,528
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|
|
$
|
—
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|
|
$
|
4,528
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|
|
|
| |
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(A)
|
REIT debt is measured at fair value based on more observable quotes. Therefore, is categorized as a Level 2 fair value hierarchy measurement.
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(B)
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Represents non-consolidated CDO securities, excluding eight securities with a zero value, which had an aggregate face amount of $112.5 million.
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Newcastle’s investments in instruments measured at fair value on a recurring basis using Level 3 inputs changed during the nine months ended ended September 30, 2014 as follows:
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CMBS
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ABS
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Conduit
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Other
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Subprime
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Other
|
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Equity/Other Securities
|
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Linked Transactions
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Total
|
|
Balance at December 31, 2013
|
$
|
198,935
|
|
|
$
|
85,534
|
|
|
57,581
|
|
|
$
|
—
|
|
|
$
|
59,757
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|
|
$
|
43,662
|
|
|
$
|
445,469
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|
|
Total gains (losses) (A)
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in net income (B)
|
15,402
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|
|
—
|
|
|
—
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|
|
—
|
|
|
717
|
|
|
12,498
|
|
|
28,617
|
|
|
Included in other comprehensive income (loss)
|
(18,663
|
)
|
|
(231
|
)
|
|
5,432
|
|
|
—
|
|
|
4,874
|
|
|
—
|
|
|
(8,588
|
)
|
|
Amortization included in interest income
|
14,986
|
|
|
368
|
|
|
4,101
|
|
|
72
|
|
|
1,866
|
|
|
—
|
|
|
21,393
|
|
|
Purchases, sales and repayments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Proceeds from sales
|
(72,438
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(50,390
|
)
|
|
—
|
|
|
(122,828
|
)
|
|
Proceeds from repayments
|
(5,713
|
)
|
|
(12,095
|
)
|
|
(6,883
|
)
|
|
(72
|
)
|
|
(2,794
|
)
|
|
(56,160
|
)
|
|
(83,717
|
)
|
|
Balance at September 30, 2014
|
$
|
132,509
|
|
|
$
|
73,576
|
|
|
60,231
|
|
|
$
|
—
|
|
|
$
|
14,030
|
|
|
$
|
—
|
|
|
$
|
280,346
|
|
|
|
|
(A)
|
None of the gains (losses) recorded in earnings during the period is attributable to the change in unrealized gains (losses) relating to Level 3 assets still held at the reporting date.
|
|
|
|
(B)
|
These gains (losses) are recorded in the following line items in the consolidated statements of income:
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2014
|
|
Gain (loss) on settlement of investments, net
|
$
|
16,119
|
|
|
Other income (loss), net
|
12,498
|
|
|
OTTI
|
—
|
|
|
Total
|
$
|
28,617
|
|
|
|
|
|
Gain (loss) on settlement of investments, net, from investments transferred into Level 3 during the period
|
$
|
—
|
|
Securities
Valuation
As of September 30, 2014, Newcastle’s securities valuation methodology and results are further detailed as follows:
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Outstanding
Face
|
|
Amortized
Cost
|
|
Multiple
|
|
Single
|
|
Internal
Pricing
|
|
|
|
Asset Type
|
Amount (A)
|
|
Basis (B)
|
|
Quotes (C)
|
|
Quote (D)
|
|
Models (E)
|
|
Total
|
|
CMBS
|
$
|
240,403
|
|
|
$
|
168,387
|
|
|
$
|
144,830
|
|
|
$
|
61,255
|
|
|
$
|
—
|
|
|
$
|
206,085
|
|
|
REIT debt
|
29,200
|
|
|
28,856
|
|
|
30,293
|
|
|
—
|
|
|
—
|
|
|
30,293
|
|
|
Non-Agency RMBS
|
87,113
|
|
|
37,892
|
|
|
46,177
|
|
|
14,054
|
|
|
—
|
|
|
60,231
|
|
|
ABS - other real estate
|
8,464
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
CDO (F)
|
21,377
|
|
|
6,394
|
|
|
—
|
|
|
6,708
|
|
|
7,013
|
|
|
13,721
|
|
|
Equity securities
|
—
|
|
|
—
|
|
|
—
|
|
|
309
|
|
|
—
|
|
|
309
|
|
|
Total
|
$
|
386,557
|
|
|
$
|
241,529
|
|
|
$
|
221,300
|
|
|
$
|
82,326
|
|
|
$
|
7,013
|
|
|
$
|
310,639
|
|
|
|
|
(A)
|
Net of incurred losses.
|
|
|
|
(B)
|
Net of discounts (or gross of premiums) and after OTTI.
|
|
|
|
(C)
|
Management
generally obtained pricing service quotations or broker quotations from at least two sources, one of which was generally
the seller (the party that sold us the security). Management selected one of the quotes received as being most representative
of fair value and did not use an average of the quotes. Even if Newcastle receives two or more quotes on a particular
security that come from non-selling brokers or pricing services, it does not use an average because management believes
using an actual quote more closely represents a transactable price for the security than an average level. |
| |
|
| |
Newcastle measures the fair value of
REIT debt based on quoted market prices in less active markets or pricing service quotations and models utilizing observable
market inputs. For securities that are categorized as a Level 3 fair value hierarchy measurement, there is a wide disparity
between the quotes Newcastle receives. Management believes using an average of the quotes in these cases would generally not
represent the fair value of the asset. Based on Newcastle’s own fair value analysis using internal models, management
selects one of the quotes which are believed to more accurately reflect fair value. Newcastle never adjusts quotes received.
These quotations are generally received via email and contain disclaimers which state that they are “indicative”
and not “actionable” – meaning that the party giving the quotation is not bound to actually purchase the
security at the quoted price. |
|
|
|
(D)
|
Management was unable to obtain quotations from more than one source on these securities. The one source was generally the seller (the party that sold us the security) or a pricing service.
|
|
|
|
(E)
|
Securities whose fair value was estimated based on internal pricing models are further detailed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
Unrealized
|
|
Weighted Average Significant Input
|
|
|
Amortized
Cost
Basis (B)
|
|
Fair Value
|
|
Recorded
In Current
Period
|
|
Gains
(Losses) in
Accumulated
OCI
|
|
Discount
Rate
|
|
Prepayment
Speed (G)
|
|
Cumulative
Default
Rate
|
|
Loss
Severity
|
|
CDO
|
—
|
|
|
7,013
|
|
|
—
|
|
|
7,013
|
|
|
10.5
|
%
|
|
5.0
|
%
|
|
19.3
|
%
|
|
72.5
|
%
|
|
Total
|
$
|
—
|
|
|
$
|
7,013
|
|
|
$
|
—
|
|
|
$
|
7,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2014, there was no ABS or CMBS fair value based on model mark assumptions.
All of the assumptions listed have some degree of market observability, based on Newcastle’s knowledge of the market, relationships with market participants, and use of common market data sources. Collateral prepayment, default and loss severity projections are in the form of “curves” or “vectors” that vary for each monthly collateral cash flow projection. Methods used to develop these projections vary by asset class but conform to industry conventions. Newcastle uses assumptions that generate its best estimate of future cash flows of each respective security.
The prepayment vector specifies the percentage of the collateral balance that is expected to voluntarily pay off at each point in the future. The prepayment vector is based on projections from a widely published investment bank model which considers factors such as collateral FICO score, loan-to-value ratio, debt-to-income ratio, and vintage on a loan level basis. This vector is scaled up or down to match recent collateral-specific prepayment experience, as obtained from remittance reports and market data services.
Loss severities are based on recent collateral-specific experience with additional consideration given to collateral characteristics. Collateral age is taken into consideration because severities tend to initially increase with collateral age before eventually stabilizing. Newcastle typically uses projected severities that are higher than the historic experience for collateral that is relatively new to account for this effect. Collateral characteristics such as loan size, lien position, and location (state) also effect loss severity. Newcastle considers whether a collateral pool has experienced a significant change in its composition with respect to these factors when assigning severity projections.
Default rates are determined from the current “pipeline” of loans that are more than 90 days delinquent, in foreclosure, or are REO. These significantly delinquent loans determine the first 24 months of the default vector. Beyond month 24, the default vector transitions to a steady-state value that is generally equal to or greater than that given by the widely published investment bank model.
The discount rates Newcastle uses are derived from a range of observable pricing on securities backed by similar collateral and offered in a live market. As the markets in which Newcastle transacts have become less liquid, Newcastle has had to rely on fewer data points in this analysis.
|
|
|
(F)
|
Represents non-consolidated CDO securities, excluding eight securities with a zero value, which had an aggregate face amount of $112.5 million.
|
| (G) |
Projected annualized average prepayment rate. |
Loan Valuation
Loans which Newcastle does not have the ability or intent to hold into the foreseeable future are classified as held-for-sale. As a result, these held-for-sale loans are carried at the lower of amortized cost or fair value and are therefore recorded at fair value on a non-recurring basis. These loans were written down to fair value at the time of the impairment, based on broker quotations, pricing service quotations or internal pricing models. All the loans were within Level 3 of the fair value hierarchy. For real estate related and other loans, the most significant inputs used in the valuations are the amount and timing of expected future cash flows, market yields and the estimated collateral value of such loan investments. For residential mortgage loans, significant inputs include management’s expectations of prepayment speeds, default rates, loss severities and discount rates that market participants would use in determining the fair values of similar pools of residential mortgage loans.
The following tables summarize certain information for real estate related and other loans and residential mortgage loans held-for-sale as of September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
Significant Input
|
|
|
|
Outstanding
|
|
|
|
|
|
Allowance/
|
|
Range
|
|
Weighted Average
|
|
|
|
Face
|
|
Carrying
|
|
Fair
|
|
(Reversal) In
|
|
Discount
|
|
Loss
|
|
Discount
|
|
Loss
|
|
|
Loan Type
|
Amount
|
|
Value
|
|
Value
|
|
Current Year
|
|
Rate
|
|
Severity
|
|
Rate
|
|
Severity
|
|
|
Mezzanine
|
$
|
132,053
|
|
|
$
|
99,666
|
|
|
$
|
102,512
|
|
|
$
|
(31
|
)
|
|
5.0-9.0%
|
|
|
0% -100%
|
|
|
7.2
|
%
|
|
22.5
|
%
|
|
|
Bank Loan
|
169,659
|
|
|
106,296
|
|
|
118,156
|
|
|
1,299
|
|
|
15.0 - 35.9%
|
|
|
0% - 100%
|
|
|
21.8
|
%
|
|
27.1
|
%
|
|
|
B-Note
|
22,067
|
|
|
18,761
|
|
|
18,761
|
|
|
(3,454
|
)
|
|
12.0
|
%
|
|
0.0
|
%
|
|
12.0
|
%
|
|
0.0
|
%
|
|
|
Whole Loan
|
269
|
|
|
269
|
|
|
272
|
|
|
—
|
|
|
4.0
|
%
|
|
0.0
|
%
|
|
4.0
|
%
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate Related and other Loans Held-for-Sale, Net
|
$
|
324,048
|
|
|
$
|
224,992
|
|
|
$
|
239,701
|
|
|
$
|
(2,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table summarizes certain information for residential mortgage loans held-for-sale as of September 30, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
|
|
Significant Input (Weighted Average)
|
|
|
|
Outstanding
|
|
|
|
|
|
Allowance/
|
|
|
|
|
|
|
|
|
|
|
|
Face
|
|
Carrying
|
|
Fair
|
|
(Reversal) In
|
|
Discount
|
|
Prepayment
|
|
Constant
|
|
Loss
|
|
Loan Type
|
|
Amount
|
|
Value
|
|
Value
|
|
Current Year (A)
|
|
Rate
|
|
Speed
|
|
Default Rate
|
|
Severity
|
|
Residential Loans
|
|
4,686
|
|
|
4,036
|
|
|
4,317
|
|
|
527
|
|
|
7.7
|
%
|
|
0.2
|
%
|
|
23.8
|
%
|
|
5.1
|
%
|
|
Total Residential Mortgage Loans, Held-for-Sale, Net
|
|
$
|
4,686
|
|
|
$
|
4,036
|
|
|
$
|
4,317
|
|
|
$
|
527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
(A)
|
The valuation allowance (reversal) excludes $0.4 million allowance related to the manufactured housing portfolio that was sold in May 2014.
|
Derivatives
Derivative
transactions are entered into by Newcastle solely for risk management purposes, except for total rate of return swaps. Such total
rate of return swaps are essentially financings of certain reference assets which are treated as derivatives for accounting purposes.
The decision of whether or not a given transaction/position (or portion thereof) is hedged is made on a case-by-case basis, based
on the risks involved and other factors as determined by senior management, including restrictions imposed by the Internal Revenue
Code of 1986 among others. In determining whether to hedge a risk, Newcastle may consider whether other assets, liabilities, firm
commitments and anticipated transactions already offset or reduce the risk. All transactions undertaken as hedges are entered
into with a view towards minimizing the potential for economic losses that could be incurred by Newcastle. Generally, all derivatives
entered into are intended to qualify as hedges under GAAP, unless specifically stated otherwise. To this end, terms of hedges
are matched closely to the terms of hedged items.
Newcastle’s derivative instruments are comprised of interest rate swaps and linked transactions. Newcastle’s interest rate swaps are valued using counterparty quotations. These quotations are generally based on valuation models with model inputs that can generally be verified and which do not involve significant judgment. The significant observable inputs used in determining the fair value of Newcastle’s Level 2 interest rate swap derivative contracts are contractual cash flows and market based interest rate curves. The linked transactions, which are categorized into Level 3, are evaluated on a net basis considering their underlying components, the security acquired and the related repurchase financing agreement. The securities are valued using a similar methodology to the one described in “Securities Valuation” above and this value is netted against the carrying value of the repurchase agreement (which approximates fair value as described in “Liabilities for Which Fair Value is Only Disclosed” below), adjusted for net accrued interest receivable/payable on the securities and repurchase agreement of the linked transactions (see Note 10 for a discussion of Newcastle’s outstanding linked transactions).
Newcastle’s derivatives are recorded on its balance sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Balance sheet location
|
|
September 30, 2014
|
|
December 31, 2013
|
|
Derivative Assets
|
|
|
|
|
|
|
|
|
Linked transactions at fair value
|
Receivables and other assets
|
|
$
|
—
|
|
|
$
|
43,662
|
|
|
|
|
|
$
|
—
|
|
|
$
|
43,662
|
|
|
Derivative Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swaps, designated as hedges
|
Accounts payable, accrued expenses and other liabilities
|
|
$
|
2,852
|
|
|
$
|
6,203
|
|
|
Interest rate swaps, not designated as hedges
|
Accounts payable, accrued expenses and other liabilities
|
|
1,676
|
|
|
7,592
|
|
|
|
|
|
$
|
4,528
|
|
|
$
|
13,795
|
|
In May 2014, the CDO VIII Class 1 notes were repaid in full and the repurchase agreement was terminated. Therefore, the associated linked transaction was effectively terminated.
The following table summarizes information related to derivatives:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2014
|
|
December 31, 2013
|
|
Cash flow hedges
|
|
|
|
|
|
|
Notional amount of interest rate swap agreements
|
$
|
83,673
|
|
|
$
|
105,031
|
|
|
Cumulative unrealized loss in OCI on effective portion
|
(2,884
|
)
|
|
(6,117
|
)
|
|
Deferred hedge gain related to anticipated financings, which have subsequently occurred, net of amortization
|
116
|
|
|
170
|
|
|
Deferred hedge loss related to dedesignation, net of amortization
|
—
|
|
|
(45
|
)
|
|
Expected reclassification of deferred hedges from AOCI into earnings over the next 12 months
|
76
|
|
|
53
|
|
|
Expected reclassification of current hedges from AOCI into earnings over the next 12 months
|
(2,369
|
)
|
|
(3,915
|
)
|
|
|
|
|
|
|
Non-hedge Derivatives
|
|
|
|
|
|
|
Notional amount of interest rate swap agreements
|
130,342
|
|
|
185,871
|
|
|
Notional amount of linked transactions (A)
|
—
|
|
|
116,806
|
|
|
|
|
(A)
|
This represents the current face amount of the underlying financed securities comprising linked transactions.
|
The following table summarizes gains (losses) recorded in relation to derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement
|
|
Three Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
|
location
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
Cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gain (loss) on the ineffective portion
|
Other income (loss)
|
|
$
|
(158
|
)
|
|
$
|
—
|
|
|
$
|
101
|
|
|
$
|
—
|
|
|
Realized loss recognized at dedesignation
|
Other income (loss)
|
|
(34
|
)
|
|
—
|
|
|
(34
|
)
|
|
—
|
|
|
Realized loss reclassified from AOCI into income, related to effective portion
|
Interest expense
|
|
(1,024
|
)
|
|
(1,280
|
)
|
|
(3,481
|
)
|
|
(4,848
|
)
|
|
Realized hedge gain reclassified from AOCI into income, related to anticipated financings
|
Interest expense
|
|
18
|
|
|
17
|
|
|
53
|
|
|
50
|
|
|
Realized hedge loss reclassified from AOCI into income, related to effective portion of dedesignated hedges
|
Interest expense
|
|
(2
|
)
|
|
(16
|
)
|
|
(11
|
)
|
|
(48
|
)
|
|
Non-hedge derivatives gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
Other income (loss)
|
|
1,762
|
|
|
1,894
|
|
|
5,866
|
|
|
7,302
|
|
|
Linked transactions
|
Other income (loss)
|
|
—
|
|
|
—
|
|
|
12,499
|
|
|
—
|
|
|
Linked transactions
|
Interest expense
|
|
—
|
|
|
(110
|
)
|
|
(211
|
)
|
|
(118
|
)
|
Liabilities for Which
Fair Value Is Only Disclosed
The following table summarizes the level of the fair value hierarchy, valuation techniques and inputs used for estimating each class of liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed:
|
|
|
|
|
|
|
|
Type of Liabilities Not Measured At Fair Value for Which Fair Value Is Disclosed
|
|
Fair Value Hierarchy
|
|
|
Valuation Techniques and Significant Inputs
|
|
CDO bonds payable
|
|
Level 3
|
|
Valuation technique is based on discounted cash flow.
Significant inputs include:
|
|
|
|
|
|
l
|
Underlying security and loan prepayment, default and cumulative loss expectations
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
|
l
|
Market yields and credit spreads implied by comparisons to transactions of similar tranches of CDO debt by the varying levels of subordination
|
|
Other bonds and notes payable
|
|
Level 3
|
|
Valuation technique is based on discounted cash flow.
Significant inputs include:
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
|
l
|
Interest rates
|
|
|
|
|
|
l
|
Market yields and credit spreads implied by comparisons to transactions of similar tranches of securitized debt by the varying levels of subordination
|
|
Repurchase agreements
|
|
Level 2
|
|
Valuation technique is based on market comparables.
Significant variables include:
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
|
l
|
Interest rates
|
|
|
|
|
|
l
|
Collateral funding spreads
|
|
Mortgage notes payable
|
|
Level 3
|
|
Valuation technique is based on discounted cash flows.
Significant inputs include:
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
|
l
|
Interest rates
|
|
|
|
|
|
l
|
Collateral funding spreads
|
|
Golf credit facilities
|
|
Level 3
|
|
Valuation technique is based on discounted cash flows.
Significant inputs include:
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
|
l
|
Interest rates
|
|
|
|
|
|
l
|
Credit spread of golf
|
|
Junior subordinated notes payable
|
|
Level 3
|
|
Valuation technique is based on discounted cash flow.
Significant inputs include:
|
|
|
|
|
|
l
|
Amount and timing of expected future cash flows
|
|
|
|
|
|
l
|
Interest rates
|
|
|
|
|
|
l
|
Market yields and the credit spread of Newcastle
|
|