Annual report pursuant to Section 13 and 15(d)

DEBT OBLIGATIONS

v3.3.1.900
DEBT OBLIGATIONS
12 Months Ended
Dec. 31, 2015
Debt Disclosure [Abstract]  
DEBT OBLIGATIONS
DEBT OBLIGATIONS

The following table presents certain information regarding Newcastle's debt obligations and related hedges:
 
December 31, 2015
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateral
 
 
 
 
Debt Obligation/Collateral
Month Issued
 
Outstanding Face Amount
 
Carrying Value
 
Final Stated Maturity
 
Weighted Average Coupon (A)
 
Weighted Average Funding Cost (B)
 
Weighted Average Life (Years)
 
Face Amount of Floating Rate Debt
 
Outstanding Face Amount (C)
 
Amortized Cost Basis (C)
 
Carrying Value (C)
 
Weighted Average Life (Years)
 
Floating Rate Face Amount (C)
 
Outstanding Face Amount
 
Carrying Value
CDO Bonds Payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CDO VI (D)
Apr 2005
 
$
92,933

 
$
92,933

 
Apr 2040
 
1.12%
 
1.12
%
 
4.1
 
$
89,183

 
$
69,838

 
$
25,124

 
$
46,392

 
3.9
 
$
12,477

 
$
92,462

 
$
92,462

CDO VIII
Nov 2006
 

 

 
 
—%
 
%
 
0.0
 

 

 

 

 
0.0
 

 
71,813

 
71,717

CDO IX
May 2007
 

 

 
 
—%
 
%
 
0.0
 

 

 

 

 
0.0
 

 
62,578

 
63,494

 
 
 
92,933

 
92,933

 
 
 
 
 
1.12
%
 
4.1
 
89,183

 
69,838

 
25,124

 
46,392

 
3.9
 
12,477

 
226,853

 
227,673

Other Bonds & Notes Payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NCT 2013-VI IMM-1 (E)
Nov 2013
 
4,984

 
4,672

 
Apr 2040
 
LIBOR+0.25%
 
21.78
%
 
0.4
 
4,984

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
31,060

 
27,069

Mezzanine Note Payable
Oct 2015
 
11,660

 
11,490

 
Oct 2016
 
LIBOR+3.00%
 
6.38
%
 
0.8
 
11,660

 
19,433

 
19,433

 
19,433

 
0.5
 
19,433

 

 

 
 
 
16,644

 
16,162

 
 
 
 
 
10.83
%
 
0.7
 
16,644

 
19,433

 
19,433

 
19,433

 
0.5
 
19,433

 
31,060

 
27,069

Repurchase Agreements (F)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CDO Securities
Dec 2013
 

 

 
 
—%
 
%
 
0.0
 

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
55,894

 
55,894

FNMA/FHLMC securities
Dec 2015
 
348,625

 
348,625

 
Jan 2016
 
0.71%
 
0.71
%
 
0.1
 

 
350,280

 
365,265

 
365,265

 
7.7
 

 
385,282

 
385,282

Golf Loans (G)
Aug 2015
 
70,000

 
69,833

 
Feb 2016
 
LIBOR + 3.50%
 
5.13
%
 
0.4
 
70,000

 
N/A

 
N/A

 
N/A

 
N/A
 

 

 

 
 
 
418,625

 
418,458

 
 
 
 
 
1.45
%
 
0.2
 
70,000

 
350,280

 
365,265

 
365,265

 
7.7
 

 
441,176

 
441,176

 
December 31, 2015
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Collateral
 
 
 
 
Debt Obligation/Collateral
Month Issued
 
Outstanding Face Amount
 
Carrying Value
 
Final Stated Maturity
 
Weighted Average Coupon (A)
 
Weighted Average Funding Cost (B)
 
Weighted Average Life (Years)
 
Face Amount of Floating Rate Debt
 
Outstanding Face Amount (C)
 
Amortized Cost Basis (C)
 
Carrying Value (C)
 
Weighted Average Life (Years)
 
Floating Rate Face Amount (C)
 
Outstanding Face Amount
 
Carrying Value
Golf Credit Facilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
First Lien Loan (G)
Dec 2013
 

 

 

 


%
 
0.0
 

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
49,923

 
49,800

Second Lien Loan (G)
Dec 2013
 

 

 
—%
 
—%
 
%
 
0.0
 

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
105,575

 
105,315

Vineyard II
Dec 1993
 
200

 
200

 
Dec 2043

 
2.11%
 
2.11
%
 
28.0
 
200

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
200

 
200

Capital Leases (Equipment)
May 2014 - Dec 2015
 
11,058

 
11,058

 
Jun 2021
 
3.83% to 11.54%
 
6.46
%
 
4.5
 

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
6,159

 
6,159

 
 
 
11,258

 
11,258

 
 
 
 
 
6.38
%
 
4.9
 
200

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
161,857

 
161,474

Corporate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Junior subordinated notes payable
Mar 2006
 
51,004

 
51,225

 
Apr 2035
 
7.57%
(H)
7.36
%
 
19.3
 

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
51,004

 
51,231

 
 
 
51,004

 
51,225

 
 
 
 
 
7.36
%
 
19.3
 

 
N/A

 
N/A

 
N/A

 
N/A
 
N/A

 
51,004

 
51,231

Subtotal debt obligation
 
 
590,464

 
590,036

 
 
 
 
 
2.26
%
 
2.6
 
$
176,027

 
$
439,551

 
$
409,822

 
$
431,090

 
6.7
 
$
31,910

 
911,950

 
908,623

Financing on subprime mortgage loans subject to call option
(I)
 
380,806

 
380,806

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
406,217

 
406,217

Total debt obligation
 
 
$
971,270

 
$
970,842

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,318,167

 
$
1,314,840

See notes on next page.
(A)
Weighted average, including floating and fixed rate classes.
(B)
Including the effect of applicable hedges and deferred financing cost.
(C)
Excluding restricted cash held in CDOs to be used for principal and interest payments of CDO debt.
(D)
This CDO was not in compliance with its applicable over collateralization tests as of December 31, 2015. 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), because net interest is being used to repay debt, and expects this CDO to remain out of compliance for the forseeable future.
(E)
Represents financings of previously repurchased Newcastle CDO bonds for which the collateral is eliminated in consolidation.
(F)
These repurchase agreements had $0.5 million accrued interest payable at December 31, 2015. The counterparties on these repurchase agreements are Nomura ($48.6 million), Morgan Stanley ($53.7 million), Citi ($246.3 million) and Credit Suisse ($70.0 million). Newcastle has margin exposure on $418.6 million of repurchase agreements related to the financing of FNMA/FHLMC securities and Golf loans. 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. $348.6 million of repurchase agreements were repaid in 2016 as part of the sale of the FNMA/FHLMC securities.
(G)
The golf repurchase agreement is collateralized by assets of the Golf business. The carrying amount of the golf repurchase agreement is reported net of deferred financing costs of $0.2 million as of December 31, 2015. The First Lien Loan and Second Lien Loan are reported net of deferred financing costs of $0.4 million as of December 31, 2014.
(H)
LIBOR +2.25% after April 2016.
(I)
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.


Certain of the debt obligations included above are obligations of consolidated subsidiaries of Newcastle which own the related collateral. In some cases, including the CDO and Other Bonds Payable, such collateral is not available to other creditors of Newcastle.
CDO Bonds Payable
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, cash flow and liquidity are negatively impacted upon such a failure. As of December 31, 2015, CDO VI was not in compliance with its over collateralization tests.

In June 2011, Newcastle deconsolidated a non-recourse financing structure, CDO V. Newcastle determined that it does not currently have the power to direct the relevant activities of CDO V as an event of default had occurred and Newcastle may be removed as the collateral manager by a single party. So long as the event of default continues, Newcastle will not be permitted to purchase or sell any collateral in CDO V. If Newcastle is removed as the collateral manager of CDO V, it would no longer receive the senior management fees from such CDO. As of February 29, 2016, Newcastle has not been removed as collateral manager. Newcastle does not expect the failure of these additional tests to have a material negative impact on its cash flows, business, results of operations or financial condition.
In June 2013, Newcastle completed the sale of 100% of the assets in CDO IV. Newcastle sold $153.4 million face amount of collateral at an average price of 95% of par, or $145.2 million. Subsequently, Newcastle paid off $71.9 million of outstanding third party debt and terminated the CDO. This transaction resulted in approximately $73.1 million of proceeds to Newcastle of which approximately $5.3 million was received in Newcastle CDO VIII. Newcastle recovered par on $59.5 million of CDO debt which had been repurchased in the past at an average price of 52% of par and $8.0 million of proceeds on its subordinated interests. This transaction has also decreased Newcastle’s comprehensive income by $0.6 million and resulted in a net gain on sale of assets of $4.2 million and a $0.8 million gain on hedge termination.

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 operations. In May 2014, the CDO VIII Class I notes were repaid in full and the repurchase agreement was terminated.

During the second quarter of 2015, approximately $60.3 million of Newcastle CDO VIII notes were repaid primarily due to the sale of securities and loans.  See Notes 5 and 6.  As a result of the repayment of the Newcastle CDO VIII notes, Newcastle also repaid $13.3 million of repurchase agreements associated with Newcastle CDO VIII.

During the second quarter of 2015, approximately $51.4 million of Newcastle CDO IX notes were repaid primarily due to the sales and paydown of securities and loans.  See Notes 5 and 6.  As a result of the repayment of the Newcastle CDO IX notes, Newcastle also repaid $22.3 million of repurchase agreements associated with Newcastle CDO IX.

In June 2015, Newcastle repurchased $11.5 million face amount of CDO bonds payable issued by Newcastle CDO VIII at a price of 95.50% of par for total proceeds of $11.0 million.  As a result, Newcastle extinguished $11.5 million face amount of CDO bonds payable and recorded a gain on extinguishment of debt of $0.5 million.
As of December 31, 2015, CDO VI was not in compliance with its applicable over collateralization tests and, consequently, Newcastle was not receiving cash flows from this CDO currently (other than senior management fees and interest distributions from senior classes of bonds Newcastle owns). Based upon Newcastle’s current calculations, Newcastle expects this CDO to remain out of compliance for the foreseeable future.
Other Bonds and Notes Payable

In October 2015, Newcastle financed an unencumbered real estate related loan with a face amount of $19.4 million with a mezzanine note payable for $11.7 million. This note payable bears interest at one month LIBOR + 3.00%, matures in October 2016 and is subject to customary margin provisions.
Repurchase Agreements

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 bore interest at one-month LIBOR + 1.65%, matured in January 2015 and were subject to customary margin provisions.
In November 2014, Newcastle financed $391.9 million face amount of purchased FNMA/FHLMC securities with repurchase agreements with carrying value of $385.3 million as of December 31, 2014. These repurchase agreements bore interest at 0.36%, matured in February 2015 and were subject to customary margin provisions.

In March 2015, Newcastle sold Agency RMBS with a face amount of approximately $380.4 million at an average price of 104.72% for a gain of $5.9 million, and repaid associated repurchase agreements. Also in March 2015, Newcastle financed $389.1 million face amount of purchased FNMA/FHLMC securities with repurchase agreements with carrying value of $386.1 million as of March 31, 2015. These repurchase agreements bore interest at 0.37%, matured in April 2015 and were subject to customary margin provisions.

In July 2015, Newcastle sold $380.4 million face amount of agency RMBS at an average price of 103.13% for total proceeds of approximately $392.3 million, and recognized a loss of approximately $5.9 million.  Newcastle repaid $375.7 million of outstanding repurchase agreement liabilities in connection with this sale.

In September 2015, Newcastle sold $250.4 million face amount of agency RMBS at an average price of 103.83% of par for total proceeds of approximately $260.0 million, and recognized a gain of $2.5 million. Newcastle repaid $250.1 million of outstanding repurchase agreement liabilities in connection with this sale.

In October 2015, Newcastle sold $348.9 million face amount of agency RMBS at an average price of 104.32% of par for total proceeds of approximately $364.0 million, and recognized a gain of $5.1 million. Newcastle repaid $345.9 million of outstanding repurchase agreement liabilities in connection with this sale.

In October 2015, Newcastle purchased $354.8 million face amount of agency RMBS at an average price of 104.42% of par for total proceeds of approximately $370.5 million. This transaction was financed with $352.6 million of repurchase agreements.

In December 2015, Newcastle entered into a trade to sell $350.3 million face amount of agency RMBS at an average price of 103.2% of par for total proceeds of approximately $361.3 million, and recognized a loss of $3.9 million. Newcastle repaid $348.6 million of outstanding repurchase agreement liabilities in connection with this sale. This trade settled in January 2016.

In December 2015, Newcastle entered into a trade to purchase $102.7 million face amount of agency RMBS at an average price of 103.2% of par for total proceeds of approximately $105.9 million. This transaction was financed with $102.2 million of repurchase agreements. This trade settled in January 2016.
Golf Credit Facilities and Repurchase Agreement
In December 2013, the Golf business entered into two loan agreements (“First Lien Loan” and “Second Lien Loan”) with General Electric Capital Corporation (“GECC”). In August 2015, Newcastle acquired from GECC $51.4 million outstanding face amount of the First Lien Loan at a price of 90.0% of par, or $46.3 million, and $105.6 million outstanding face amount of the Second Lien Loan at a price of 90.0% of par, or $95.0 million.  The purchases were funded with $71.3 million cash and a $70.0 million repurchase agreement. The repurchase agreement was extended, and bears interest at LIBOR + 4.00% and matures on May 31, 2016 (see Note 17 for additional information). Newcastle recorded a gain on extinguishment of debt of $15.4 million.

The Golf business is obligated under a $0.2 million loan with the City of Escondido, California (“Vineyard II”). The principal amount of the loan is payable in five equal installments upon reaching the "Achievement Date”, which is the date on which the previous 36-month period equals or exceeds 240,000 rounds of golf played on the property. As of December 31, 2015, 240,000 rounds of golf have not been achieved within an applicable 36-month period. The interest rate is adjusted annually and is equal to 1% plus an Index amount, as defined in the loan agreement. As of December 31, 2015, the interest rate is 2.11%.

Capital Leases - Equipment

The Golf business leases certain golf carts and other equipment under capital lease agreements. The agreements typically provide for minimum rentals plus executory costs. Lease terms range from 36-66 months. Certain leases include bargain purchase options at lease expiration.

The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of December 31, 2015 are as follows:
2016
$
2,848

2017
2,844

2018
2,837

2019
2,720

2020
1,425

Thereafter
128

Total minimum lease payments
12,802

Less: imputed interest
1,744

Present value of net minimum lease payments
$
11,058


Maturity Table
Newcastle’s debt obligations (gross of $0.4 million of discounts at December 31, 2015) have contractual maturities as follows:
 
Nonrecourse
 
Recourse
 
Total
2016
$
13,858

 
$
418,625

 
$
432,483

2017
2,339

 

 
2,339

2018
2,488

 

 
2,488

2019
2,534

 

 
2,534

2020
1,372

 

 
1,372

Thereafter
479,050

 
51,004

 
530,054

Total
$
501,641

 
$
469,629

 
$
971,270


Debt Covenants
Newcastle’s non-CDO financings and Golf credit facilities contain various customary loan covenants. Newcastle was in compliance with all of these covenants as of December 31, 2015.