Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE

v2.4.0.8
FAIR VALUE
 3 Months Ended
Mar. 31, 2014
Fair Value  
FAIR VALUE
12.   FAIR VALUE
 

Fair Value Summary Table

 
The carrying values and fair values of Newcastle’s assets and liabilities at March 31, 2014 were as follows: 
 
Principal Balance or
Notional Amount
 
Carrying
Value
 
Estimated
Fair Value
 
Fair Value Method (A)
 
Weighted Average
Yield/Funding Cost (B)
 
Weighted Average
Life (Years)
Assets
 

 
 

 
 

 
 
 
 

 
 

Financial instruments:
 

 
 

 
 

 
 
 
 

 
 

Real estate securities, available-for-sale (C)*
$
532,730

 
$
439,023

 
$
439,023

 
Broker quotations, counterparty quotations,  pricing services,  pricing models
 
12.62
%
 
2.8

Real estate related and other loans, held-for-sale, net
428,848

 
313,250

 
325,353

 
Broker quotations, counterparty quotations, pricing services,  pricing models
 
12.84
%
 
1.7

Residential mortgage loans, held-for-sale, net
270,484

 
248,299

 
278,317

 
Broker/counterparty quotations
 
8.54
%
 
5.3

Subprime mortgage loans subject to call option (D)
406,217

 
406,217

 
406,217

 
(D)
 
9.09
%
 
(D)

Restricted cash*


 
4,314

 
4,314

 
 
 
 

 
 

Cash and cash equivalents*


 
122,053

 
122,053

 
 
 
 

 
 

Non-hedge derivative assets (E)*
90,097

 
34,022

 
34,022

 
Counterparty quotations
 
N/A

 
(E)

Investments in senior housing real estate, net
 

 
1,374,710

 
 

 
 
 
 

 
 

Investments in other real estate, net
 

 
262,403

 
 

 
 
 
 

 
 

Intangibles
 
 
187,101

 
 
 
 
 
 
 
 
Other investments
 

 
25,795

 
 

 
 
 
 

 
 

Receivables and other assets
 

 
103,422

 
 
 
 
 
 
 
 
 
 

 
$
3,520,609

 
 

 
 
 
 

 
 

Liabilities
 

 
 

 
 

 
 
 
 

 
 

Financial instruments:
 

 
 

 
 

 
 
 
 

 
 

CDO bonds payable (G)
$
407,785

 
$
408,813

 
$
293,626

 
Pricing models
 
3.17
%
 
2.3

Other bonds and notes payable (G)
233,371

 
221,305

 
224,013

 
Broker quotations, pricing models
 
3.49
%
 
3.1

Repurchase agreements
74,863

 
74,863

 
74,863

 
Market comparables
 
1.92
%
 
0.3

Mortgage notes payable
1,091,673

 
1,091,823

 
1,092,047

 
Pricing models
 
4.74
%
 
6.5

Credit facilities, golf
152,961

 
152,961

 
152,961

 
Pricing models
 
5.20
%
 
3.8

Financing of subprime mortgage loans subject to call option (D)
406,217

 
406,217

 
406,217

 
(D)
 
9.09
%
 
(D)

Junior subordinated notes payable
51,004

 
51,236

 
33,721

 
Pricing models
 
7.39
%
 
21.1

Interest rate swaps, treated as hedges (E)(F)*
104,662

 
4,999

 
4,999

 
Counterparty quotations
 
N/A

 
(E)

Non-hedge derivatives (E)*
183,729

 
5,515

 
5.515

 
Counterparty quotations
 
N/A

 
(E)

Dividends payable, accrued expenses and other liabilities
 

 
297,402

 
 
 
 
 
 
 
 

Liabilities of discontinued operations
 

 
—

 
 

 
 
 
 

 
 
 
 

 
$
2,715,134

 
 

 
 
 
 

 
 

*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 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)
The weighted average yield and weighted average funding cost are disclosed for financial instrument assets and liabilities, respectively.
(C)
Excludes nine CDO securities with a zero value, which had an aggregate face amount of $115.3 million.
(D)
These two items results from an option, not an obligation, to repurchase loans from Newcastle’s subprime mortgage loan securitizations (Note 6), are noneconomic until such option is exercised, and are equal and offsetting. 
(E)
Newcastle’s derivatives fall into two categories. A derivative asset with an aggregate notional balance of $90.1 million represents linked transactions with $90.1 million face amount of underlying financed securities. As of March 31, 2014, all derivative liabilities, which represent three interest rate swaps, were held within Newcastle’s nonrecourse structures. An aggregate notional balance of $288.3 million is 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 CDOs’ total investments exceeded the fair value of each of the CDOs’ derivative liabilities, no credit valuation adjustments were recorded. Newcastle’s interest rate swap counterparties include Bank of America and Bank of New York Mellon. Newcastle’s derivatives are included in receivables and other assets or accounts payable, accrued expenses and other liabilities in the consolidated balance sheets, as applicable.
(F)
 
Year of Maturity
 
Weighted Average Month of Maturity
 
Aggregate Notional Amount
 
Weighted Average Fixed Pay Rate
 
Aggregate Fair Value
Interest rate swap agreements
which receive 1-Month LIBOR:
 
 
 
 
 
 
 
 
 
 
2016
 
Apr
 
$
104,662

 
5.04
%
 
$
4,999


(G)
Newcastle notes that the unrealized gain on the liabilities within such structures cannot be fully realized. Assets held within CDOs and other nonrecourse 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.


 
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.
 
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.
 
Newcastle has various processes and controls in place to ensure that fair value is reasonably estimated. With respect to the broker and pricing service quotations, to ensure these quotes represent a reasonable estimate of fair value, Newcastle’s quarterly procedures include a comparison to quotations from different sources, outputs generated from its internal pricing models and transactions Newcastle has completed with respect to these or similar securities, as well as on its knowledge and experience of these markets. With respect to fair value estimates generated based on Newcastle’s internal pricing models, Newcastle’s management validates the inputs and outputs of the internal pricing models by comparing them to available independent third party market parameters, where vailable, and models for reasonableness. Newcastle believes its valuation methods and the assumptions used are appropriate and consistent with other market participants. The board of directors has reviewed Newcastle’s process for determining the valuations of its investments based on information provided by the Manager and has concluded such process is reasonable and appropriate.
 

Fair value measurements categorized within Level 3 are sensitive to changes in the assumptions or methodology used to determine fair value and such changes could result in a significant increase or decrease in the fair value. For Newcastle’s investments in real estate securities, real estate related and other loans and residential mortgage loans categorized within Level 3 of the fair value hierarchy, the significant unobservable inputs include the discount rates, assumptions relating to prepayments, default rates and loss severities. Significant increases (decreases) in any of the discount rates, default rates or loss severities in isolation would result in a significantly lower (higher) fair value measurement. The impact of changes in prepayment speeds would have differing impacts on fair value, depending on the seniority of the investment. Generally, a change in the default assumption is generally accompanied by directionally similar changes in the assumptions used for the loss severity and the prepayment speed.
 
The following table summarizes such financial assets and liabilities measured at fair value on a recurring basis at March 31, 2014:
 
Principal Balance or
 
 
 
Fair Value
 
 Notional Amount
 
Carrying Value
 
Level 2
 
Level 3
 
Total
Assets
 

 
 

 
 

 
 

 
 

Real estate securities, available-for-sale:
 

 
 

 
 

 
 

 
 

CMBS
$
330,213

 
$
286,341

 
$
—

 
$
286,341

 
$
286,341

REIT debt
29,200

 
30,957

 
30,957

 
—

 
30,957

Non-Agency RMBS
93,221

 
61,524

 
—

 
61,524

 
61,524

ABS - other real estate
8,464

 
—

 
—

 
—

 
—

CDO (A)
71,632

 
60,201

 
—

 
60,201

 
60,201

Real estate securities total
$
532,730

 
$
439,023

 
$
30,957

 
$
408,066

 
$
439,023

Derivative assets:
 

 
 

 
 

 
 

 
 

Linked transactions at fair value
90,097

 
34,022

 
—

 
34,022

 
34,022

Derivative assets total
$
90,097

 
$
34,022

 
$
—

 
$
34,022

 
$
34,022

 
 
 
 
 
 
 
 
 
 
Liabilities
 

 
 

 
 

 
 

 
 

Derivative Liabilities:
 

 
 

 
 

 
 

 
 

Interest rate swaps, treated as hedges
$
104,662

 
$
4,999

 
$
4,999

 
$
—

 
$
4,999

Interest rate swaps, not treated as hedges
183,729

 
5,515

 
5,515

 
—

 
5,515

Derivative liabilities total
$
288,391

 
$
10,514

 
$
10,514

 
$
—

 
$
10,514

 
(A)
Represents non-consolidated CDO securities, excluding nine securities with a zero value, which had an aggregate face amount of $115.3 million.

Newcastle’s investments in instruments measured at fair value on a recurring basis using Level 3 inputs changed during the three months ended ended March 31, 2014 as follows:
 

 
CMBS
 
ABS
 
 
 
 
 
 
 
Conduit
 
Other
 
Subprime
 
Other
 
Equity/Other Securities
 
Linked Transactions
 
Total
Balance at December 31, 2013
$
198,935

 
$
85,534

 
57,581

 
$
—

 
$
59,757

 
$
43,662

 
$
445,469

Total gains (losses) (A)
 

 
 

 
 

 
 

 
 

 
 

 
 

Included in net income (B)
422

 
—

 
—

 
—

 
—

 
10,673

 
11,095

Included in other comprehensive income (loss)
(568
)
 
432

 
4,723

 
—

 
1,588

 
—

 
6,175

Amortization included in interest income
4,413

 
184

 
1,171

 
24

 
1,145

 
—

 
6,937

Purchases, sales and repayments
 

 
 

 
 

 
 

 
 

 
 

 
 

Purchases
—

 
—

 
—

 
—

 
—

 
—

 
—

Proceeds from sales
(545
)
 
—

 
—

 
—

 
—

 
—

 
(545
)
Proceeds from repayments
(2,324
)
 
(142
)
 
(1,951
)
 
(24
)
 
(2,289
)
 
(20,313
)
 
(27,043
)
Balance at March 31, 2014
$
200,333

 
$
86,008

 
61,524

 
$
—

 
$
60,201

 
$
34,022

 
$
442,088


(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 date.
(B)
These gains (losses) are recorded in the following line items in the consolidated statements of income:
 
Three Months Ended March 31, 2014
Gain (loss) on settlement of investments, net
$
422

Other income (loss), net
10,673

OTTI
—

Total
$
11,095

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

 
Securities Valuation
 

As of March 31, 2014, Newcastle’s securities valuation methodology and results are further detailed as follows:
 
 
 
 
 
Fair Value
 
Outstanding
Face
 
Amortized
Cost
 
Multiple
 
Single
 
Internal
Pricing
 
 
Asset Type
Amount (A)
 
Basis (B)
 
Quotes (C)
 
Quote (D)
 
Models (E)
 
Total
CMBS
$
330,213

 
$
229,887

 
$
243,629

 
$
42,712

 
$
—

 
$
286,341

REIT debt
29,200

 
28,729

 
30,957

 
—

 
—

 
30,957

Non-Agency RMBS
93,221

 
39,894

 
61,524

 
—

 
—

 
61,524

ABS - other real estate
8,464

 
—

 
—

 
—

 
—

 
—

CDO (F)
71,632

 
55,851

 
—

 
56,923

 
3,278

 
60,201

Total
$
532,730

 
$
354,361

 
$
336,110

 
$
99,635

 
$
3,278

 
$
439,023

 
(A)
Net of incurred losses.
(B)
Net of discounts (or gross of premiums) and after OTTI, including impairment taken during the period ended March 31, 2014.
(C)
Management generally obtained pricing service quotations or broker quotations from at least 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. 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 are believed to more accurately reflect fair value. Newcastle never adjusts quotes received. These quotations are generally received via email and contain disclaimers which state that they are “indicative” and not “actionable” – meaning that the party giving the quotation is not bound to actually purchase the security at the quoted price.
(D)
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.
(E)
Securities whose fair value was estimated based on internal pricing models are further detailed as follows:
 
 
 
 
 
Impairment
 
Unrealized
 
Weighted Average Significant Input
 
Amortized
Cost
Basis (B)
 
Fair Value
 
Recorded
In
Current
Period
 
Gains
(Losses) in
Accumulated
OCI
 
Discount
Rate
 
Prepayment
Speed (G)
 
Cumulative
Default
Rate
 
Loss
Severity
CDO
—

 
3,278

 
—

 
3,278

 
20.0
%
 
3.5
%
 
21.0
%
 
73.6
%
Total
$
—

 
$
3,278

 
$
—

 
$
3,278

 
 

 
 

 
 

 
 


At March 31, 2014, there was no ABS or CMBS fair value based on model mark assumptions.

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 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.

 (F)
Represents non-consolidated CDO securities, excluding nine securities with a zero value, which had an aggregate face amount of $115.3 million.
 
(G)
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. 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 and other 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 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 certain information for real estate related and other loans and residential mortgage loans held-for-sale as of March 31, 2014:
 
 
 
 
 
 
 
Valuation
 
Significant Input
 
 
Outstanding
 
 
 
 
 
Allowance/
 
Range
 
Weighted Average
 
 
Face
 
Carrying
 
Fair
 
(Reversal) In
 
Discount
 
Loss
 
Discount
 
Loss
 
Loan Type
Amount
 
Value
 
Value
 
Current Year
 
Rate
 
Severity
 
Rate
 
Severity
 
Mezzanine
$
157,519

 
$
125,071

 
$
128,324

 
$
—

 
5.0%-9.0%

 
0.0%-100.0%

 
7.0
%
 
18.9
%
 
Bank Loan
174,806

 
97,244

 
106,086

 
1,607

 
16.6%-42.1%

 
0.0%-100.0%

 
22.0
%
 
34.1
%

B-Note
96,033

 
90,445

 
90,444

 
(1,175
)
 
8.2%-12.0%

 
0.0
%
 
11.1
%
 
0.0
%
 
Whole Loan
490

 
490

 
499

 
—

 
4.0
%
 
0.0
%
 
4.1
%
 
0.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Real Estate Related and other Loans Held-for-Sale, Net
$
428,848

 
$
313,250

 
$
325,353

 
$
432

 
 

 
 

 
 

 
 

 
 
 
The following table summarizes certain information for residential mortgage loans held-for-sale as of March 31, 2014:
 
 
 
 
 
 
 
 
Valuation
 
Significant Input (Weighted Average)
 
 
Outstanding
 
 
 
 
 
Allowance/
 
 
 
 
 
 
 
 
 
 
Face
 
Carrying
 
Fair
 
(Reversal) In
 
Discount
 
Prepayment
 
Constant
 
Loss
Loan Type
 
Amount
 
Value (A)
 
Value (A)
 
Current Year
 
Rate
 
Speed
 
Default Rate
 
Severity
Non-securitized Manufactured Housing Loans Portfolio I
 
$
496

 
$
130

 
$
521

 
$
(3
)
 
82.0
%
 
5.0
%
 
11.6
%
 
65.0
%
Non-Securitized Manufactured Housing Loans Portfolio II
 
2,511

 
2,048

 
2,726

 
(16
)
 
15.4
%
 
5.0
%
 
3.5
%
 
60.0
%
Securitized Manufactured Housing Loans Portfolio I
 
98,925

 
89,113

 
104,991

 
(3
)
 
9.5
%
 
6.0
%
 
3.0
%
 
65.0
%
Securitized Manufactured Housing Loans Portfolio II
 
123,611

 
123,277

 
131,529

 
437

 
8.3
%
 
7.0
%
 
3.5
%
 
60.0
%
Residential Loans
 
44,941

 
33,731

 
38,550

 
399

 
7.0
%
 
4.6
%
 
2.7
%
 
45.8
%
Total Residential Mortgage Loans, Held-for-Sale, Net
 
$
270,484

 
$
248,299

 
$
278,317

 
$
814

 
 

 
 

 
 

 
 

(A)
Carrying value and fair value include interest receivable of $0.1 million for the residential housing loans and principal and interest receivable of $5.2 million for the manufactured housing loans.

 
Derivatives
 

Newcastle’s derivative instruments are comprised of interest rate swaps and linked transactions. Newcastle’s interest rate swaps 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 Newcastle’s Level 2 interest rate swap derivative contracts are contractual cash flows and market based interest rate curves. The linked transactions, which are categorized into Level 3, are evaluated on a net basis considering their underlying components, the security acquired and the related repurchase financing agreement. The securities are valued using a similar methodology to the one described in “Securities Valuation” above and this value is netted against the carrying value of the repurchase agreement (which approximates fair value as described in “Liabilities for Which Fair Value is Only Disclosed” below), adjusted for net accrued interest receivable/payable on the securities and repurchase agreement of the linked transactions (see Note 10 for a discussion of Newcastle’s outstanding linked transactions).
 


Newcastle’s derivatives are recorded on its balance sheet as follows:
 
 
 
Fair Value
 
Balance sheet location
 
March 31, 2014
 
December 31, 2013
Derivative Assets
 
 
 

 
 

Linked transactions at fair value
Receivables and other assets
 
$
34,022

 
$
43,662

 
 
 
$
34,022

 
$
43,662

Derivative Liabilities
 
 
 

 
 

Interest rate swaps, designated as hedges
Accounts payable, accrued expenses and other liabilities
 
$
4,999

 
$
6,203

Interest rate swaps, not designated as hedges
Accounts payable, accrued expenses and other liabilities
 
5,515

 
7,592

 
 
 
$
10,514

 
$
13,795

 
The following table summarizes information related to derivatives:
 
March 31, 2014
 
December 31, 2013
Cash flow hedges
 

 
 

Notional amount of interest rate swap agreements
$
104,662

 
$
105,031

Amount of (loss) recognized in OCI on effective portion
(4,914
)
 
(6,117
)
Deferred hedge gain (loss) related to anticipated financings, which have subsequently occurred, net of amortization
153

 
170

Deferred hedge gain (loss) related to dedesignation, net of amortization
(40
)
 
(45
)
Expected reclassification of deferred hedges from AOCI into earnings over the next 12 months
54

 
53

Expected reclassification of current hedges from AOCI into earnings over the next 12 months
(3,937
)
 
(3,915
)
 
 
 
 
Non-hedge Derivatives
 

 
 

Notional amount of interest rate swap agreements
183,729

 
185,871

Notional amount of linked transactions (A)
90,097

 
116,806

(A)
This represents the current face amount of the underlying financed securities comprising linked transactions.







The following table summarizes gains (losses) recorded in relation to derivatives:
 
 
 
Three Months Ended 
 March 31,
 
Income statement location
 
2014
 
2013
Cash flow hedges
 
 
 

 
 

Amount of gain (loss) reclassified from AOCI into income, related to effective portion
Interest expense
$
(1,280
)
$
(1,865
)
Deferred hedge gain reclassified from AOCI into income, related to anticipated financings
Interest expense
 
17

 
16

Deferred hedge gain (loss) reclassified from AOCI into income, related to effective portion of dedesignated hedges
Interest expense
 
(4
)
 
(16
)
 
 
 
 
 
 
Non-hedge derivatives gain (loss)
 
 
 

 
 

Interest rate swaps
Other income (loss)
 
2,075

 
3,126

Linked transactions
Other income (loss)
 
10,673

 
—

 
 
The following table presents both gross information and net information about linked transactions as of March 31, 2014:
Real estate securities-available for sale (A)
$
88,272

Repurchase agreements (B)
(54,250
)
Net assets recognized as linked transactions
$
34,022

 
(A)
Represents the fair value of the securities accounted for as part of linked transactions at March 31, 2014.
(B)
Represents the carrying value, which approximates fair value, of the repurchase agreements accounted for as part of linked transactions at March 31, 2014.
 

Liabilities for Which Fair Value is Only Disclosed
 
The following table summarizes the level of the fair value hierarchy, valuation techniques and inputs used for estimating each class of liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed:
Type of Liabilities Not Measured At Fair Value for Which Fair Value Is Disclosed
 
Fair Value Hierarchy
 
 
Valuation Techniques and Significant Inputs
CDO bonds payable
 
Level 3
 
Valuation technique is based on discounted cash flow.
Significant inputs include:
 
 
 
 
l
Underlying security and loan prepayment, default and cumulative loss expectations
 
 
 
 
l
Amount and timing of expected future cash flows
 
 
 
 
l
Market yields and credit spreads implied by comparisons to transactions of similar tranches of CDO debt by the varying levels of subordination
Other bonds and notes payable
 
Level 3
 
Valuation technique is based on discounted cash flow.
Significant inputs include:
 
 
 
 
l
Amount and timing of expected future cash flows
 
 
 
 
l
Interest rates
 
 
 
 
l
Market yields and credit spreads implied by comparisons to transactions of similar tranches of securitized debt by the varying levels of subordination
Repurchase agreements
 
Level 2
 
Valuation technique is based on market comparables. 
Significant variables include:
 
 
 
 
l
Amount and timing of expected future cash flows
 
 
 
 
l
Interest rates
 
 
 
 
l
Collateral funding spreads
Mortgage notes payable
 
Level 3
 
Valuation technique is based on discounted cash flows. 
Significant inputs include:
 
 
 
 
l
Amount and timing of expected future cash flows
 
 
 
 
l
Interest rates
 
 
 
 
l
Collateral funding spreads
Golf credit facilities
 
Level 3
 
Valuation technique is based on discounted cash flows. 
Significant inputs include:
 
 
 
 
l
Amount and timing of expected future cash flows
 
 
 
 
l
Interest rates
 
 
 
 
l
Credit spread of golf
Junior subordinated notes payable
 
Level 3
 
Valuation technique is based on discounted cash flow.
Significant inputs include:
 
 
 
 
l
Amount and timing of expected future cash flows
 
 
 
 
l
Interest rates
 
 
 
 
l
Market yields and the credit spread of Newcastle