Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE (Tables)

v3.4.0.3
FAIR VALUE (Tables)
3 Months Ended
Mar. 31, 2016
Fair Value Disclosures [Abstract]  
Schedule of carrying value and estimated fair value of assets and liabilities
The following table summarizes the carrying values and estimated fair values of Newcastle’s financial instruments at March 31, 2016
 
Carrying
Value
 
Estimated
Fair Value
 
Fair Value Method (A)
Assets
 

 
 

 
 
Real estate securities, available-for-sale
$
12,638

 
$
12,638

 
Broker/counterparty quotations, pricing services,  pricing models
Real estate securities, pledged as collateral
381,206

 
381,206

 
Broker/counterparty quotations, pricing services
Real estate related and other loans, held-for-sale, net
155,075

 
171,147

 
Broker/counterparty quotations, pricing services,  pricing models
Residential mortgage loans, held-for-sale, net
446

 
482

 
Broker/counterparty quotations, pricing models
Subprime mortgage loans subject to call option (B)
372,874

 
372,874

 
(B)
Restricted cash
3,898

 
3,898

 
 
Cash and cash equivalents
32,126

 
32,126

 
 
Non-hedge derivative assets (C)
165

 
165

 
Counterparty quotations, pricing services
 
 
 
 
 
 
Liabilities
 
 
 
 
 
Other bonds and notes payable (D)
$
11,575

 
$
11,660

 
Counterparty quotations, market comparables
Repurchase agreements
420,374

 
420,549

 
Counterparty quotations, market comparables
Credit facilities and obligations under capital leases
11,324

 
11,324

 
Pricing models
Financing of subprime mortgage loans subject to call option (B)
372,874

 
372,874

 
(B)
Junior subordinated notes payable
51,223

 
22,265

 
Pricing models
Non-hedge derivative liabilities (C)
1,063

 
1,063

 
Counterparty quotations, pricing services
 
(A)
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.
(B)
Represents an option, not an obligation, to repurchase loans from Newcastle’s subprime mortgage loan securitizations (Note 6).  
(C)
Represents derivative assets and liabilities including TBA forward contracts (Note 12).
(D)
Newcastle notes that the unrealized gain on the liabilities within such structures cannot be fully realized. Assets held within non-recourse 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.
Schedule of assets and liabilites measured at fair value on a recurring basis
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis at March 31, 2016:
 
 
 
Fair Value
 
Carrying Value
 
Level 2
 
Level 3
 
Total
 
 
 
Market Quotations (Observable)
 
Market Quotations (Unobservable)
 
Internal Pricing Models
 
 
Assets
 

 
 

 
 

 
 
 
 

Real estate securities, available-for-sale:
 

 
 

 
 

 
 
 
 

CMBS
$

 
$

 
$

 
$

 
$

Non-Agency RMBS
2,847

 

 
2,847

 

 
2,847

CDO (A)
9,791

 

 

 
9,791

 
9,791

Real estate securities, available-for-sale total
$
12,638

 
$

 
$
2,847

 
$
9,791

 
$
12,638

 
 
 
 
 
 
 
 
 
 
Real estate securities, pledged as collateral:
 
 
 
 
 
 
 
 
 
FNMA/FHLMC
$
381,206

 
$
381,206

 
$

 
$

 
$
381,206

Real estate securities, pledged as collateral total
$
381,206

 
$
381,206

 
$

 
$

 
$
381,206

 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
TBAs, not treated as hedges
$
165

 
$
165

 
$

 
$

 
$
165

Derivative assets total
$
165

 
$
165

 
$

 
$

 
$
165

 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 
 
 

Derivative liabilities:
 

 
 

 
 

 
 
 
 

TBAs, not treated as hedges
$
1,063

 
$
1,063

 
$

 
$

 
$
1,063

Derivative liabilities total
$
1,063

 
$
1,063

 
$

 
$

 
$
1,063

 
(A)
Represents non-consolidated CDO securities, excluding 13 securities with zero value, which had an aggregate face amount of $192.0 million as of March 31, 2016.
Schedule of quantitative information about significant unobservable inputs
The following table provides quantitative information regarding the significant unobservable inputs used by Newcastle for assets and liabilities measured at fair value on a recurring basis as of March 31, 2016. This table excludes inputs used to measure fair value that are not developed by Newcastle, such as broker prices and other third-party pricing service valuations.

 
 
 
 
 
 
Weighted Average Significant Input
Asset Type
 
Amortized
Cost
Basis
 
Fair Value
 
Discount
Rate
 
Prepayment
Speed
 
Cumulative
Default
Rate
 
Loss
Severity
CDO
 
$

 
$
9,791

 
12.4
%
 
4.6
%
 
18.1
%
 
32.3
%
Total
 
$

 
$
9,791

 
 
 
 
 
 
 
 
Schedule of change in fair value of Level 3 investments
Newcastle’s investments in instruments measured at fair value on a recurring basis using Level 3 inputs changed during the three months ended March 31, 2016 as follows:
 
CMBS
 
Non-Agency RMBS
 
Equity/Other Securities
 
Total
Balance at December 31, 2015
$
39,684

 
$
9,619

 
$
9,731

 
$
59,034

Transfers
 
 
 
 
 
 
 
Transfers into Level 3

 

 

 

CDO VI deconsolidation
(37,179
)
 
(6,710
)
 

 
(43,889
)
Total gains (losses) (A)
 

 
 

 
 

 
 

Included in net income (B)
(110
)
 

 

 
(110
)
Included in other comprehensive income (loss)
(658
)
 
(23
)
 
60

 
(621
)
Amortization included in interest income
879

 
123

 

 
1,002

Purchases, sales and repayments
 

 
 

 
 

 
 

Purchases

 

 

 

Proceeds from sales

 

 

 

Proceeds from repayments
(2,616
)
 
(162
)
 

 
(2,778
)
Balance at March 31, 2016
$

 
$
2,847

 
$
9,791

 
$
12,638


(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 dates.
(B)
These gains (losses) are recorded in the following line items in the Consolidated Statements of Operations:
 
Three Months Ended March 31, 2016
Gain (loss) on settlement of investments, net
$

OTTI
(110
)
Total
$
(110
)
Schedule of fair value for real estate related and other loans held-for-sale
The following tables summarize certain information for real estate related and other loans as of March 31, 2016:
 
 
 
 
 
 
Significant Input
 
 
 
 
 
 
Range
 
Weighted Average
Loan Type
 
Carrying Value
 
Fair Value
 
Discount Rate
 
Loss Severity
 
Discount Rate
 
Loss Severity
Mezzanine
 
$
19,433

 
$
19,433

 
0.0%-8.0%
 
0%-100%
 
8.0
%
 
47.8
%
Bank Loan
 
135,642

 
151,714

 
0.0%-22.5%
 
0%-100%
 
22.5
%
 
21.8
%
Total Real Estate Related and Other Loans Held-for-Sale, Net
 
$
155,075

 
$
171,147