Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE OF FINANCIAL INSTRUMENTS

 v2.3.0.11
FAIR VALUE OF FINANCIAL INSTRUMENTS
 6 Months Ended
Jun. 30, 2011
FAIR VALUE OF FINANCIAL INSTRUMENTS

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair Value Summary Table

Newcastle held the following financial instruments at June 30, 2011:

 

     Principal
Balance or
Notional
Amount		      Carrying
Value		      Fair Value     

Fair Value Method (A)

    Weighted
Average
Yield/Funding
Cost		     Weighted
Average
Maturity
(Years)		  

Assets

                 

Non-Recourse VIE Financing Structures (F)

                 

Financial instruments:

                 

Real estate securities, available for sale*

    $ 2,055,400       $ 1,585,960       $ 1,585,960       Broker quotations, counterparty quotations, pricing services, pricing models      9.20 %      4.1   

Real estate related loans, held for sale, net

      1,018,725         793,083         799,533       Broker quotations, counterparty quotations, pricing services, pricing models      13.03 %      2.6   

Residential mortgage loans, held for investment, net

      334,264         306,505         309,712       Pricing models      8.35 %      6.8   

Residential mortgage loans, held for sale, net

      62,167         47,305         47,305       Pricing models      5.58 %      7.6   

Subprime mortgage loans subject to call option (B)

      406,217         404,239         404,239       (B)      9.09 %      (B ) 

Restricted cash*

      171,255         171,255         171,255           

Derivative assets, treated as hedges (C)(E)*

      104,205         3,377         3,377       Counterparty quotations      N/A        (C ) 

Non-hedge derivative assets (D)(E)*

      36,428         2,157         2,157       Counterparty quotations      N/A        (D ) 

Operating real estate, held for sale

         8,335         8,350           

Other investments

         18,883         18,883           

Receivables and other assets

         27,723         27,723           
     

 

 

     

 

 

          
      $ 3,368,822       $ 3,378,494           
     

 

 

     

 

 

          

Recourse Financing Structures and Unlevered Assets

                 

Financial instruments:

                 

Real estate securities, available for sale*

    $ 322,963       $ 197,678       $ 197,678       Broker quotations, counterparty quotations, pricing services, pricing models      1.76 %      2.8   

Real estate related loans, held for sale, net

      69,634         6,634         6,634       Broker quotations, counterparty quotations, pricing services, pricing models      19.28 %      0.9   

Residential mortgage loans, held for sale, net

      7,566         3,371         3,371       Pricing models      18.12 %      4.2   

Cash and cash equivalents*

      100,838         100,838         100,838           

Other investments

         6,024         6,024           

Receivables and other assets

         3,435         3,435           
     

 

 

     

 

 

          
      $ 317,980       $ 317,980           
     

 

 

     

 

 

          

 

 

     Principal
Balance or
Notional
Amount		      Carrying
Value		      Fair Value     

Fair Value Method (A)

    Weighted
Average
Yield/
Funding
Cost 		    Weighted
Average
Maturity
(Years)		  

Liabilities

                 

Non-Recourse VIE Financing Structures (F) (G)

                 

Financial instruments:

                 

CDO bonds payable

    $ 2,451,814       $ 2,451,880       $ 1,538,810       Pricing models      2.99 %      3.8   

Other bonds and notes payable

      222,596         219,959         224,497       Pricing models, broker quotation      4.27 %      3.7   

Repurchase agreements

      10,829         10,829         10,829       Market comparables      1.69 %      0.5   

Financing of subprime mortgage loans subject to call option (B)

      406,217         404,239         404,239       (B)      9.09 %      (B ) 

Interest rate swaps, treated as hedges (C)(E)*

      1,011,215         94,901         94,901       Counterparty quotations      N/A        (C ) 

Non-hedge derivatives (D)(E)*

      345,438         31,600         31,600       Counterparty quotations      N/A        (D ) 

Accrued expenses and other liabilities

         47,601         47,601           
     

 

 

     

 

 

          
      $ 3,261,009       $ 2,352,477           
     

 

 

     

 

 

          

Recourse Financing Structures and Other Liabilities (G)

                 

Financial instruments:

                 

Repurchase agreements

    $ 107,216       $ 107,216       $ 107,216       Market comparables      0.34 %      0.2   

Junior subordinated notes payable

      51,004         51,251         37,549       Pricing models      7.41 %      23.8   

Due to affiliates

         1,518         1,518           

Accrued expenses and other liabilities

         96,441         96,441           
     

 

 

     

 

 

          
      $ 256,426       $ 242,724           
     

 

 

     

 

 

          

 

* Measured at fair value on a recurring basis.
(A) Methods are listed in order of priority. In the case of real estate securities and real estate related 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.
(B) These two items result from an option, not an obligation, to repurchase loans from Newcastle’s subprime mortgage loan securitizations (Note 4), are noneconomic until such option is exercised, and are equal and offsetting.
(C) Represents derivative agreements as follows:

 

Year of Maturity

    Weighted Average
Month of Maturity		      Aggregate Notional
Amount		      Weighted Average Fixed
Pay Rate / Cap Rate		     Aggregate Fair Value
Asset / (Liability)		  

Interest rate cap agreements which receive 1-Month LIBOR:

           

2015

      Sep       $ 21,000         2.26 %    $ 504   

2016

      Jul         77,905         2.66 %      2,619   

2017

      Jan         5,300         1.86 %      254   
     

 

 

       

 

 

  
      $ 104,205         $ 3,377   
     

 

 

       

 

 

  

Interest rate swap agreements which receive 1-Month LIBOR:

           

2011

      Dec       $ 91,450         5.00 %    $ (1,825 ) 

2014

      Nov         15,456         5.08 %      (1,895 ) 

2015

      Apr         550,120         5.44 %      (40,774 ) 

2016

      May         180,155         5.04 %      (21,183 ) 

2017

      Aug         174,034         5.24 %      (29,224 ) 
     

 

 

       

 

 

  
      $ 1,011,215         $ (94,901 ) 
     

 

 

       

 

 

  

 

(D) This represents two interest rate swap agreements with a total notional balance of $345.4 million, maturing in March 2014 and March 2015, and three interest rate cap agreements with a total notional balance of $36.4 million, maturing in August 2017 and January 2019. Newcastle entered into these hedge agreements to reduce its exposure to interest rate changes on the floating rate financings of CDO IV, CDO VI and CDO X. These derivative agreements were not designated as hedges for accounting purposes as of June 30, 2011.
(E) Newcastle’s derivatives fall into two categories. As of June 30, 2011, all derivatives were held within Newcastle’s nonrecourse CDO structures. An aggregate notional balance of $1.4 billion, which were liabilities at period end, are only 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 CDO’s investments exceeded the fair value of the CDO’s derivative liabilities, no credit valuation adjustments were recorded. An aggregate notional balance of $140.6 million were assets at period end and therefore are subject to the counterparty’s credit risk. No adjustments have been made to the fair value quotations received related to credit risk as a result of the counterparty’s “AA” credit rating. Newcastle’s significant derivative counterparties include Bank of America, Credit Suisse and Wells Fargo.
(F) Assets held within CDOs and other non-recourse structures are 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.
(G) Newcastle notes that the unrealized gain on the liabilities within such structures cannot be fully realized.

 

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

 

  •  

Quoted prices in active markets for similar instruments,

 

  •  

Quoted prices in less active or inactive markets for identical or similar instruments,

 

  •  

Other observable inputs (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates), and

 

  •  

Market corroborated inputs (derived principally from or corroborated by observable market data).

Level 3 - Valuations based significantly on unobservable inputs.

 

  •  

Level 3A - Valuations based on third party indications (broker quotes, counterparty quotes or pricing services) which were, in turn, based significantly on unobservable inputs or were otherwise not supportable as Level 2 valuations.

 

  •  

Level 3B - Valuations based on internal models with significant 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.

The following table summarizes such financial assets and liabilities measured at fair value on a recurring basis at June 30, 2011:

 

                   Fair Value  
     Principal Balance or
Notional Amount		      Carrying Value      Level 2      Level 3A (1)      Level 3B (2)      Total  

Assets:

                  

Real estate securities, available for sale:

                  

CMBS

    $ 1,505,164       $ 1,155,772       $ —         $ 984,596       $ 171,176       $ 1,155,772   

REIT debt

      172,393         179,455         179,455         —           —           179,455   

ABS - subprime

      264,944         152,993         —           71,422         81,571         152,993   

ABS - other real estate

      57,126         43,213         —           33,958         9,255         43,213   

FNMA / FHLMC

      185,273         194,460         194,460         —           —           194,460   

CDO

      193,463         55,221         —           55,221         —           55,221   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Debt security total

    $ 2,378,363         1,781,114         373,915         1,145,197         262,002         1,781,114   
  

 

 

                 

Equity securities

         2,524         —           —           2,524         2,524   
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Real estate securities total

       $ 1,783,638       $ 373,915       $ 1,145,197       $ 264,526       $ 1,783,638   
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Derivative assets:

                  

Interest rate caps, treated as hedges

    $ 104,205       $ 3,377       $ 3,377       $ —         $ —         $ 3,377   

Interest rate caps, not treated as hedges

      36,428         2,157         2,157         —           —           2,157   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Derivative assets total

    $ 140,633       $ 5,534       $ 5,534       $ —         $ —         $ 5,534   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities:

                  

Derivative Liabilities:

                  

Interest rate swaps, treated as hedges

    $ 1,011,215       $ 94,901       $ 94,901       $ —         $ —         $ 94,901   

Interest rate swaps, not treated as hedges

      345,438         31,600         31,600         —           —           31,600   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Derivative liabilities total

    $ 1,356,653       $ 126,501       $ 126,501       $ —         $ —         $ 126,501   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) Third party pricing sources with significant unobservable inputs.
(2) Internal models with significant unobservable inputs.

 

Newcastle’s investments in instruments measured at fair value on a recurring basis using Level 3 inputs changed during the six months ended June 30, 2011 as follows:

 

     Level 3A  
     CMBS     ABS     Equity/
Other
Securities 		       
     Conduit     Other     Subprime     Other       Total  

Balance at December 31, 2010

    $ 840,227      $ 331,904      $ 83,582      $ 36,193      $ —        $ 1,291,906   

Transfers (A)

             

Transfers from Level 3B

      5,032        —          6,806        —          —          11,838   

Transfers into Level 3B

      (34,947 )      —          (15,031 )      (7,548 )      —          (57,526 ) 

CDO V deconsolidation

      (59,970 )      (55,838 )      (5,107 )      —          —          (120,915 ) 

Total gains (losses) (B)

             

Included in net income (C)

      40,424        (98 )      (23 )      —          —          40,303   

Included in other comprehensive income (loss)

      (25,174 )      40,205        (2,887 )      176        (2,250 )      10,070   

Amortization included in interest income

      12,064        5,055        2,543        99        405        20,166   

Purchases, sales and settlements

             

Purchases

      131,355        27,262        19,327        7,548        62,662        248,154   

Proceeds from sales

      (94,987 )      (34,790 )      (6,573 )      —          —          (136,350 ) 

Proceeds from repayments

      (36,002 )      (107,126 )      (11,215 )      (2,510 )      (5,596 )      (162,449 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at June 30, 2011

    $ 778,022      $ 206,574      $ 71,422      $ 33,958      $ 55,221      $ 1,145,197   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

     Level 3B  
     CMBS     ABS     Equity/
Other
Securities 		       
     Conduit     Other     Subprime     Other       Total  

Balance at December 31, 2010

    $ 107,457      $ 21,146      $ 94,424      $ 8,985      $ 4,282      $ 236,294   

Transfers (A)

             

Transfers from Level 3A

      34,947        —          15,031        7,548        —          57,526   

Transfers into Level 3A

      (5,032 )      —          (6,806 )      —          —          (11,838 ) 

CDO V deconsolidation

      (32,289 )      (1,908 )      (14,568 )      (3,833 )      —          (52,598 ) 

Total gains (losses) (B)

             

Included in net income (C)

      7,046        722        (62 )      (12 )      3,385        11,079   

Included in other comprehensive income (loss)

      32,422        243        4,594        (2,044 )      (1,757 )      33,458   

Amortization included in interest income

      9,094        46        4,539        775        255        14,709   

Purchases, sales and settlements

             

Purchases

      4,501        25,000        25        —          5,387        34,913   

Proceeds from sales

      (22,789 )      (721 )      (8,624 )      (348 )      (3,884 )      (36,366 ) 

Proceeds from repayments

      (8,688 )      (21 )      (6,982 )      (1,816 )      (5,144 )      (22,651 ) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Balance at June 30, 2011

    $ 126,669      $ 44,507      $ 81,571      $ 9,255      $ 2,524      $ 264,526   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(A) Transfers are assumed to occur at the beginning of the quarter. CDO V was deconsolidated on June 17, 2011.
(B) 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 dates.
(C) These gains(losses) are recorded in the following line items in the consolidated statement of income:

 

     Six Months Ended
June 30, 2011		  
     Level 3A     Level 3B  

Gain (loss) on settlement of investments, net

    $ 41,710      $ 19,261   

Other income (loss), net

      —          —     

OTTI

      (1,407 )      (8,182 ) 
  

 

 

    

 

 

  

Total

    $ 40,303      $ 11,079   
  

 

 

    

 

 

  

Gain (loss) on settlement of investments, net, from investments transferred into Level 3 during the period

    $ —        $ —     

 

 

Securities Valuation

As of June 30, 2011, Newcastle’s securities valuation methodology and results are further detailed as follows:

 

                    Fair Value  

Asset Type

    Outstanding
Face
Amount		      Amortized
Cost
Basis (A) 		     Multiple
Quotes (B)		      Single
Quote (C)		      Internal
Pricing
Models (D)		      Total  

CMBS

    $ 1,505,164       $ 1,069,905       $ 675,975       $ 308,621       $ 171,176       $ 1,155,772   

REIT debt

      172,393         171,683         112,878         66,577         -            179,455   

ABS - subprime

      264,944         140,294         46,801         24,621         81,571         152,993   

ABS - other real estate

      57,126         42,978         33,255         703         9,255         43,213   

FNMA / FHLMC

      185,273         194,067         —           194,460         —           194,460   

CDO

      193,463         57,471         —           55,221         —           55,221   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Debt security total

    $ 2,378,363         1,676,398         868,909         650,203         262,002         1,781,114   
  

 

 

                 

Equity securities

         1,112         —           —           2,524         2,524   
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

       $ 1,677,510       $ 868,909       $ 650,203       $ 264,526       $ 1,783,638   
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(A) Net of discounts (or gross of premiums) and after OTTI, including impairment taken during the period ended June 30, 2011.
(B) Management generally obtained pricing service quotations or broker quotations from 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. Newcastle’s methodology is to not use quotes from selling brokers, unless those quotes are the only marks available, or unless the quotes provided by other (non-selling) brokers or pricing services are, in management’s judgment, not representative of fair value. 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. Furthermore, in some cases 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 is believed to more accurately reflect fair value. Newcastle never adjusts quotes received.
(C) 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.
(D) Securities whose fair value was estimated based on internal pricing models are further detailed as follows:

 

                   Impairment
Recorded
In Current
Period 		     Unrealized
Gains  (Losses)
in Accumulated
OCI 		    Assumption Ranges
     Amortized
Cost Basis (A)		      Fair
Value 		          Discount
Rate		    Prepayment
Speed (E)		    Cumulative
Default Rate		    Loss
Severity

CMBS - Conduit

    $ 84,371       $ 126,669       $ 3,484       $ 42,298      12%    N/A    3% - 88%    25% - 100%

CMBS - Large loan / Single borrower

      45,930         44,507         —           (1,423 )    8% - 14%    N/A    0% -100%    0% - 100%

ABS - subprime

      69,381         81,571         1,354         12,190      8%    0% - 7%    24% - 88%    60% - 100%

ABS - other RE

      9,670         9,255         —           (415 )    8%    0% - 3%    45% - 69%    57% -  95%
  

 

 

     

 

 

     

 

 

     

 

 

             

Debt security total

    $ 209,352       $ 262,002       $ 4,838       $ 52,650              

Equity securities

      1,112         2,524         —           1,412              
  

 

 

     

 

 

     

 

 

     

 

 

             

Total

    $ 210,464       $ 264,526       $ 4,838       $ 54,062              
  

 

 

     

 

 

     

 

 

     

 

 

             

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 (e.g., CMBS projections are developed differently than home equity ABS projections) 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 real estate owned (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.

 

(E) 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. During the six months ended June 30, 2011, Newcastle recorded ($57.3) million and $1.4 million of valuation allowance (reversal) on real estate related loans and residential mortgage loans (Note 4), respectively. 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 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 the fair value information for real estate related loans and residential mortgage loans held-for-sale as of June 30, 2011:

 

                           Valuation
Allowance/
(Reversal) In
Current Period 		                    
      Outstanding
Face
Amount 		                    

Significant Input Ranges

          

Loan Type

       Carrying
Value		      Fair
Value 		      

Discount Rate

   

Loss Severity

          

Mezzanine

    $ 529,882       $ 413,007       $ 418,011       $ (50,438 )    6.6% - 19.3%    0.0% - 100.0%      

Bank Loan

      272,558         168,502         169,930         3,764      8.8% - 24.9%    0.0% - 64.0%      

B-Note

      255,147         187,436         187,436         (10,660 )    7.1% - 20.0%    0.0% - 100.0%      

Whole Loan

      30,772         30,772         30,790         —        4.7% - 7.8%    0.0% - 0.0%      
  

 

 

     

 

 

     

 

 

     

 

 

             

Total Real Estate Related Loans Held for Sale, Net

    $ 1,088,359       $ 799,717       $ 806,167       $ (57,334 )            
  

 

 

     

 

 

     

 

 

     

 

 

             

 

                           Valuation
Allowance/
(Reversal) In
Current Period 		                         
      Outstanding
Face
Amount 		                     Significant Input Ranges  

Loan Type

       Carrying
Value		      Fair
Value		        Discount Rate     Prepayment
Speed		     Cumulative
Default Rate		     Loss Severity  

Residential Loans

    $ 62,167       $ 47,305       $ 47,305       $ 1,427        5.0% - 5.8%        0.0% - 4.0%        0.0% - 3.0%        0.0% - 50.0%   

Manufactured Housing Loans I

      972         254         254         29        47.9 %      3.0 %      4.0 %      75.0 % 

Manufactured Housing Loans II

      6,594         3,117         3,117         (1,012 )      15.7 %      5.0 %      3.5 %      80.0 % 
  

 

 

     

 

 

     

 

 

     

 

 

          

Total Residential Mortgage Loans Held for Sale, Net

    $ 69,733       $ 50,676       $ 50,676       $ 444           
  

 

 

     

 

 

     

 

 

     

 

 

          

 

Derivatives

Newcastle’s derivative instruments 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 our Level 2 derivative contracts are contractual cash flows and market based interest rate curves. Newcastle’s derivatives are recorded on its balance sheet as follows:

 

          Fair Value  
     Balance sheet location    June 30,
2011		      December 31,
2010		  

Derivative Assets

         

Interest rate caps, designated as hedges

    Derivative Assets    $ 3,377       $ 4,537   

Interest rate caps, not designated as hedges

    Derivative Assets      2,157         2,530   
     

 

 

     

 

 

  
      $ 5,534       $ 7,067   
     

 

 

     

 

 

  

Derivative Liabilities

         

Interest rate swaps, designated as hedges

    Derivative Liabilities    $ 94,901       $ 136,575   

Interest rate swaps, not designated as hedges

    Derivative Liabilities      31,600         40,286   
     

 

 

     

 

 

  
      $ 126,501       $ 176,861   
     

 

 

     

 

 

  

The following table summarizes information related to derivatives:

 

     June 30,
2011 		    December 31,
2010 		 

Cash flow hedges

     

Notional amount of interest rate swap agreements

    $ 1,011,215      $ 1,473,669   

Notional amount of interest rate cap agreements

      104,205        104,205   

Amount of (loss) recognized in OCI on effective portion

      (73,565 )      (118,608 ) 

Deferred hedge gain (loss) related to anticipated financings, which have subsequently occurred, net of amortization

      329        357   

Deferred hedge gain (loss) related to dedesignation, net of amortization

      (79 )      1,343   

Expected reclassification of deferred hedges from AOCI into earnings over the next 12 months

      1,864        2,289   

Expected reclassification of current hedges from AOCI into earnings over the next 12 months

      (56,901 )      (63,541 ) 

Non-hedge Derivatives

     

Notional amount of interest rate swap agreements

      345,438        343,570   

Notional amount of interest rate cap agreements

      36,428        36,428   

The following table summarizes gains (losses) recorded in relation to derivatives:

 

          Three Months Ended
June 30,		     Six Months Ended
June 30,		  
    

Income statement location

    2011     2010     2011     2010  

Cash flow hedges

            

Gain (loss) on the ineffective portion

    Other income (loss)    $ 17 $        (167 )    $ 300 $        (168 ) 

Gain (loss) immediately recognized at dedesignation

    Gain (loss) on sale of investments;         
   Other income (loss)      (8,481 )      —          (13,796 )      (3,279 ) 

Amount of gain (loss) reclassified from AOCI into income, related to effective portion

    Interest expense      (17,517 )      (17,802 )      (38,708 )      (43,122 ) 

Deferred hedge gain reclassified from AOCI into income, related to anticipated financings

    Interest expense      14        13        28        447   

Deferred hedge gain (loss) reclassified from AOCI into income, related to effective portion of dedesignated hedges

    Interest expense      583        (1,114 )      1,302        (3,147 ) 

Non-hedge derivatives gain (loss)

    Other income (loss)      (2,528 )      (2,383 )      2,303        (4,131 )