3.   SPIN-OFF OF NEW RESIDENTIAL

As previously discussed in Note 1, on May 15, 2013, Newcastle completed the spin-off of New Residential from Newcastle.

On April 1, 2013, Newcastle completed a co-investment in a portfolio of consumer loans with a UPB of approximately $4.2 billion as of December 31, 2012. The portfolio included over 400,000 personal unsecured loans and personal homeowner loans originated through subsidiaries of HSBC Finance Corporation. The investment was completed through newly formed limited liability companies (collectively, the “Consumer Loan Companies”), which acquired the portfolio from HSBC Finance Corporation and its affiliates. Newcastle invested approximately $250 million for 30% membership interests in each of the Consumer Loan Companies. Of the remaining 70% of the membership interests, Springleaf Finance Inc. (“Springleaf”), which is majority-owned by Fortress funds managed by the Manager, acquired 47%, and an affiliate of Blackstone Tactical Opportunities Advisors L.L.C., acquired 23%. Springleaf acts as the managing member of the Consumer Loan Companies. The Consumer Loan Companies financed $2.2 billion of the approximately $3.0 billion purchase price with asset-backed notes. The investment in the portfolio of consumer loans was made in contemplation of, and was included in the May 15, 2013 spin-off. Newcastle has no continuing involvement in the consumer loans business post spin-off. Accordingly, the operating results are presented in discontinued operations.

The following table presents the carrying value of the assets and liabilities of New Residential, immediately preceding the May 15, 2013 spin-off.

For pro-forma information relating to the May 15, 2013 spin-off, see Note 17.

As a result of the May 15, 2013 spin-off, for all periods presented, the assets, liabilities and results of operations of those components of Newcastle’s operations that (i) were part of the spin-off, and (ii) represent operations in which Newcastle has no significant continuing involvement, are presented separately in discontinued operations in Newcastle’s consolidated financial statements. These components are primarily related to Excess MSRs and consumer loans.

Assets and liabilities of discontinued operations as of December 31, 2012 were as follows:

Results from discontinued operations were as follows:

The spin-off also resulted in a $1.2 billion reduction in the basis upon which Newcastle’s management fees are computed (and an equivalent reduction in the basis upon which the incentive compensation threshold is computed), as well as a reduction in the strike price of Newcastle’s then outstanding options (see Note 11). During the three months ended September 30, 2013, included in discontinued operations and other liabilities is $2.4 million in connection with excess mortgage servicing rights owned prior to the spin-off.