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

9 Months Ended

Sep. 30, 2016

The following table presents certain information regarding Newcastle’s debt obligations at September 30, 2016:



														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		Amortized Cost Basis		Carrying Value		Weighted Average Life (Years)	Floating Rate Face Amount
Repurchase Agreements (C)
FNMA/FHLMC Securities	Sep 2016	831,741		831,741		Oct 2016	0.79%		0.79	%	0.1	—		817,235		858,097		858,233		6.0	—
		831,741		831,741					0.79	%	0.1	—		817,235		858,097		858,233		6.0	—
Golf Credit Facilities
Golf Term Loan (D)	June 2016	102,000		98,380		Jul 2019	LIBOR+4.70%	(E)	7.92	%	2.7	102,000		N/A		N/A		N/A		N/A	N/A
Vineyard II	Dec 1993	200		200		Dec 2043	2.20%		2.20	%	27.2	200		N/A		N/A		N/A		N/A	N/A
Capital Leases (Equipment)	May 2014 - Sep 2016	16,117		16,117		Mar 2022	3.00% to 16.16%		6.56	%	4.3	—		N/A		N/A		N/A		N/A	N/A
		118,317		114,697					7.72	%	3.0	102,200		N/A		N/A		N/A		N/A	N/A
Corporate
Junior subordinated notes payable	Mar 2006	51,004		51,219		Apr 2035	LIBOR+2.25%		2.98	%	18.6	51,004		N/A		N/A		N/A		N/A	N/A
		51,004		51,219					2.98	%	18.6	51,004		N/A		N/A		N/A		N/A	N/A
Subtotal debt obligations		1,001,062		997,657					1.70	%	1.4	$	153,204	$	817,235	$	858,097	$	858,233	6.0	$	—
Financing on subprime mortgage loans subject to call option (F)		353,347		353,347
Total debt obligations		$	1,354,409	$	1,351,004

See notes on next page.


(A)	Weighted average, including floating and fixed rate classes.


(B)	Including the effect of deferred financing costs.

(C)

These repurchase agreements had $0.1 million of accrued interest payable at September 30, 2016. The counterparties on these repurchase agreements are Citi ($399.1 million), Jefferies ($284.5 million), and Morgan Stanley ($148.1 million). Newcastle has margin exposures on a total of $831.7 million repurchase agreements related to the financing of FNMA/FHLMC securities. 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. $831.7 million of repurchase agreements were repaid in October 2016 as part of the sale of the FNMA/FHLMC securities.


(D)	The golf term loan is collateralized by 22 golf properties. The carrying amount of the golf term loan is reported net of deferred financing costs of $3.6 million as of September 30, 2016.


(E)	Interest rate based on 30 day LIBOR plus 4.70% with a LIBOR floor of 1.80%. At the time of closing, Newcastle purchased a co-terminus LIBOR interest rate cap of 1.80%.


(F)	See Note 6 regarding the securitizations of Subprime Portfolios I and II.

In January 2016, Newcastle settled on a trade to sell $350.3 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 103.2% for total proceeds of $361.3 million and repaid $348.6 million of repurchase agreements associated with these securities.

In January 2016, Newcastle settled on a trade to purchase $102.7 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 103.2% for total proceeds of $105.9 million. This transaction was financed with $102.2 million of repurchase agreements.

In January 2016, Newcastle settled on a trade to purchase $250.1 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 103.2% of par for total proceeds of approximately $258.1 million. This transaction was financed with $249.1 million of repurchase agreements.

On February 26, 2016, Newcastle extended the repurchase agreement on the golf loans to mature on May 31, 2016, with an option to extend to June 30, 2016. The repurchase agreement bears interest at LIBOR + 4.00%.

In April 2016, Newcastle settled on a trade to sell $347.5 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 104.9% for total proceeds of $364.3 million and recognized a gain of approximately $5.9 million at trade date. Newcastle repaid $352.0 million of repurchase agreements associated with these securities.

In April 2016, Newcastle settled on a trade to purchase $363.1 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 105.0% for total proceeds of $381.1 million. This transaction was financed with $366.4 million of repurchase agreements.

In April 2016, Newcastle sold a mezzanine loan with a face amount of $19.4 million at par. Newcastle subsequently repaid $11.7 million of notes payable that were collateralized by the loan.

In May 2016, the option on the repurchase agreement on the golf loans was exercised to extend the maturity to June 30, 2016.

In June 2016, Newcastle obtained third-party financing on 22 golf properties for a total of $102.0 million at a floating rate of the greater of: (i) 30-day LIBOR + 4.70% or (ii) 6.50%. At the time of closing, Newcastle purchased a co-terminus LIBOR interest rate cap of 1.80%. The financing is for a term of three years with the option for two one-year extensions. Newcastle used $64.9 million of the proceeds to repay the repurchase agreement on the golf loans.

In July 2016, Newcastle sold $353.6 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 105.5% of par for total proceeds of $373.1 million and recognized a gain on sale of securities of approximately $1.8 million at trade date. Newcastle repaid $361.1 million of repurchase agreements associated with these securities.

In July 2016, Newcastle purchased $428.9 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 105.7% of par for total proceeds of $453.1 million. This transaction was financed with $434.9 million of repurchase agreements.

In August 2016, Newcastle purchased $249.6 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 103.9% of par for total proceeds of $259.3 million. This transaction was financed with $248.7 million of repurchase agreements.

In August 2016, Newcastle purchased $116.8 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 105.7% of par for total proceeds of $123.5 million. This transaction was financed with $118.6 million of repurchase agreements.

In September 2016, Newcastle purchased $35.6 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 103.8% of par for total proceeds of $37.0 million. This transaction was financed with $35.4 million of repurchase agreements.

In September 2016, Newcastle entered into a trade to purchase $632.2 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 104.9% of par for total proceeds of $663.5 million. This transaction was financed with $628.2 million of repurchase agreements. This trade settled in October 2016 (see Note 22).

In September 2016, Newcastle entered into a trade to sell $817.2 million face amount of agency FNMA/FHLMC fixed-rate securities at an average price of 105.0% of par for total proceeds of $858.2 million and recognized a gain of $0.1 million. Newcastle repaid $831.7 million of repurchase agreements associated with these securities. This trade settled in October 2016 (see Note 22).

The Golf business leases certain golf carts and other equipment under capital leases. The agreements typically provide for minimum rentals plus executory costs. Lease terms range from 36 to 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 September 30, 2016 are as follows:



October 1, 2016 - December 31, 2016	$	1,104
2017	4,418
2018	4,412
2019	4,260
2020	2,938
2021	1,360
Thereafter	89
Total minimum lease payments	18,581
Less: imputed interest	(2,464		)
Present value of net minimum lease payments	$	16,117

Newcastle’s golf credit facilities contain various customary loan covenants, including certain coverage ratios. Newcastle was in compliance with all of these covenants as of September 30, 2016.