Drive Shack Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DEBT OBLIGATIONS

DEBT OBLIGATIONS

6 Months Ended

Jun. 30, 2011

5. DEBT OBLIGATIONS

The following table presents certain information regarding Newcastles debt obligations and related hedges at June 30, 2011:


																		Collateral
Debt Obligation/ Collateral	Month Issued			Outstanding Face Amount		Carrying Value		Final Stated Maturity		Unhedged Weighted Average Funding Cost (A)	Weighted Average Funding Cost (B)			Weighted Average Maturity (Years)		Face Amount of Floating Rate Debt		Outstanding Face Amount (C)		Amortized Cost Basis (C)		Carrying Value (C)		Weighted Average Maturity (Years)		Floating Rate Face Amount (C)		Aggregate Notional Amount of Current Hedges (D)
CDO Bonds Payable
CDO IV (E)		Mar 2004		$	112,449	$	112,227		Mar 2039	1.52%		4.89	%		2.0	$	101,096	$	224,762	$	212,269	$	194,038		3.0	$	76,541	$	101,096
CDO VI (E)		Apr 2005			90,927		90,927		Apr 2040	0.83%		5.35	%		4.2		88,132		314,263		159,253		191,449		3.3		79,825		88,132
CDO VIII		Nov 2006			618,313		617,105		Nov 2052	0.77%		2.04	%		2.8		610,713		741,974		528,322		554,833		3.4		433,957		161,655
CDO IX		May 2007			480,125		483,307		May 2052	0.54%		1.45	%		2.9		480,125		691,642		572,861		586,222		2.8		405,682		91,450
CDO X		Jul 2007			1,150,000		1,148,314		Jul 2052	0.54%		3.77	%		4.8		1,150,000		1,273,145		986,336		1,040,086		4.4		244,372		898,743

					2,451,814		2,451,880					2.99	%		3.8		2,430,066		3,245,786		2,459,041		2,566,628		3.7		1,240,377		1,341,076

Other Bonds and Notes Payable (F)
MH loans Portfolio I		Apr 2010			78,094		77,036		Jul 2035	5.39%		5.39	%		3.3				143,255		118,788		118,788		7.7		1,544
MH loans Portfolio II (G)		May 2011			138,780		137,201		Dec 2033	3.78%		3.78	%		3.7				191,009		187,717		187,717		6.1		33,174
Residential Mortgage Loans (H)		Aug 2006			5,722		5,722		Dec 2034	LIBOR+ 0.90%		1.09	%		7.9		5,722		5,722		5,722		5,722		7.9		5,722

					222,596		219,959					4.27	%		3.7		5,722		339,986		312,227		312,227		6.8		40,440

Repurchase Agreements
Real estate securities, loans and properties (I)		Dec 2010			14,438		14,438		Dec 2011	LIBOR+ 1.50%		1.69	%		0.5		14,438
FNMA/FHLMC securities (J)		Various			103,607		103,607		Aug 2011	0.29%		0.29	%		0.2				104,009		108,788		109,181		4.7		104,009

					118,045		118,045					0.46	%		0.2		14,438		104,009		108,788		109,181		4.7		104,009

Corporate
Junior subordinated notes payable		Mar 2006			51,004		51,251		Apr 2035	7.57%(L)		7.41	%		23.8

					51,004		51,251					7.41	%		23.8

Subtotal debt obligations					2,843,459		2,841,135					3.06	%		4.0	$	2,450,226	$	3,689,781	$	2,880,056	$	2,988,036		4.0	$	1,384,826	$	1,341,076

Financing on subprime mortgage loans subject to call option		(K	)		406,217		404,239

Total debt obligations				$	3,249,676	$	3,245,374

(A)	Weighted average, including floating and fixed rate classes and including the amortization of deferred financing costs.

(B)	Including the effect of applicable hedges.

(C)	Including restricted cash held for reinvestment in CDOs.

(D)	Including a $36.4 million notional amount of interest rate cap agreements in CDO X and a $101.1 million and $88.1 million notional amount of interest rate swap agreements in CDO IV and CDO VI, respectively, which were economic hedges not designated as hedges for accounting purposes.

(E)

These CDOs were not in compliance with their applicable over collateralization tests as of June 30, 2011. Newcastle is not receiving cash flows from these CDOs (other than senior management fees and cash flows on senior classes of bonds which were repurchased) and expects these CDOs to remain out of compliance for the foreseeable future.

(F)	Excluding $36.9 million and $28.6 million of other bonds payable relating to MH loans Portfolio I and Portfolio II, respectively, retained by Newcastle or sold to certain Newcastle CDOs, which were eliminated in consolidation.

(G)	See Note 12.

(H)	Notes payable issued to CDO V, which is no longer eliminated since the deconsolidation of CDO V.

(I)	The counterparty of this repurchase agreement is Bank of America. It is secured by $35.7 million face amount of senior notes issued by Newcastle CDO VI, which is eliminated on consolidation. The maximum recourse to Newcastle is $3.6 million.

(J)	The counterparty on these repurchase agreements is Bank of America.

(K)	Issued in April 2006 and July 2007. See Note 4 regarding the securitizations of Subprime Portfolios I and II.

(L)	LIBOR + 2.25% after April 2016.

In the first six months of 2011, Newcastle repurchased $135.1 million face amount of CDO bonds and notes payable for $90.3 million. As a result, Newcastle extinguished $135.1 million face amount of CDO debt and notes payable and recorded a gain on extinguishment of debt of $44.5 million.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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