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, 2011

5. DEBT OBLIGATIONS

The following table presents certain information regarding Newcastles debt obligations and related hedges at September 30, 2011:


																		Collateral
Debt Obligation/Collateral	Month Issued			Outstanding Face Amount		Carrying Value		Final Stated Maturity		Unhedged Weighted Average Funding Cost (A)	Weighted Average Funding Cost (B)			Weighted Average Maturity (Years)		Face Amount of Floating Rate Debt		Outstanding Face Amount (C)		Amortized Cost Basis (C)		Carrying Value (C)		Weighted Average Maturity (Years)		Floating Rate Face Amount (C)		Aggregate Notional Amount of Current Hedges (D)
CDO Bonds Payable
CDO IV (E)		Mar 2004		$	109,607	$	109,387		Mar 2039	1.65%		4.90	%		2.5	$	98,254	$	212,723	$	200,522	$	183,418		2.7	$	67,543	$	98,254
CDO VI (E)		Apr 2005			91,032		91,032		Apr 2040	0.88%		5.35	%		4.0		88,191		265,328		144,499		164,501		3.1		76,785		88,191
CDO VIII		Nov 2006			598,313		596,922		Nov 2052	0.82%		2.12	%		2.5		590,713		749,396		533,653		544,526		3.1		443,534		161,655
CDO IX		May 2007			480,125		482,812		May 2052	0.59%		1.49	%		2.6		480,125		677,030		553,492		561,183		2.8		389,370		91,401
CDO X		Jul 2007			1,150,000		1,148,141		Jul 2052	0.60%		3.71	%		5.0		1,150,000		1,236,925		941,547		915,296		4.8		229,126		880,250

					2,429,077		2,428,294					2.99	%		3.8		2,407,283		3,141,402		2,373,713		2,368,924		3.7		1,206,358		1,319,751

Other Bonds and Notes Payable (F)
MH loans Portfolio I		Apr 2010			74,129		73,175		Jul 2035	5.41%		5.41	%		3.2				139,116		115,357		115,357		7.5		1,391
MH loans Portfolio II (G)		May 2011			132,609		131,223		Dec 2033	3.81%		3.81	%		3.6				184,615		180,926		180,926		6.0		32,067
Residential Mortgage Loans (H)		Aug 2006			5,635		5,635		Dec 2034	LIBOR+ 0.90%		1.14	%		7.5		5,635		57,612		40,806		40,806		7.4		57,612

					212,373		210,033					4.30	%		3.6		5,635		381,343		337,089		337,089		6.8		91,070

Repurchase Agreements
Real estate securities, loans and properties (I)		Dec 2010			11,686		11,686		Dec 2011	LIBOR+ 1.50%		1.74	%		0.2		11,686
FNMA/FHLMC securities (J)		Various			209,242		209,242		Nov 2011	0.31%		0.31	%		0.2		209,242		210,673		222,557		222,557		4.6		210,673

					220,928		220,928					0.39	%		0.2		220,928		210,673		222,557		222,557		4.6		210,673

Corporate
Junior subordinated notes payable		Mar 2006			51,004		51,250		Apr 2035	7.57%(L)		7.41	%		23.6

					51,004		51,250					7.41	%		23.6

Subtotal debt obligations					2,913,382		2,910,505					2.96	%		3.8	$	2,633,846	$	3,733,418	$	2,933,359	$	2,928,570		4.2	$	1,508,101	$	1,319,751

Financing on subprime mortgage loans subject to call option		(K	)		406,217		404,476

Total debt obligations				$	3,319,599	$	3,314,981

(A)	Weighted average, including floating and fixed rate classes and including the amortization of deferred financing costs.

(B)	Including the effect of applicable hedges.

(C)	Including restricted cash available for reinvestment in CDOs.

(D)	Including a $36.4 million notional amount of interest rate cap agreements in CDO X and a $98.3 million and $88.2 million notional amount of interest rate swap agreements in CDO IV and CDO VI, respectively, which were economic hedges not designated as hedges for accounting purposes.

(E)

These CDOs were not in compliance with their applicable over collateralization tests as of September 30, 2011. Newcastle is not receiving cash flows from these CDOs (other than senior management fees and cash flows on senior classes of bonds which were repurchased), since net interest is being used to repay debt, and expects these CDOs to remain out of compliance for the foreseeable future.

(F)	Excluding $36.9 million and $17.0 million face amount of other bonds payable relating to MH loans Portfolio I and Portfolio II, respectively, and $50.4 million face amount of notes payable relating to residential mortgage loans sold to certain Newcastle CDOs, which were eliminated in consolidation.

(G)	See Note 12.

(H)	Notes payable issued to CDO V, which is no longer eliminated since the deconsolidation of CDO V.

(I)	The counterparty of this repurchase agreement is Bank of America. It is secured by $32.5 million face amount of senior notes issued by Newcastle CDO VI, which is eliminated on consolidation. The maximum recourse to Newcastle is $2.9 million.

(J)	The counterparties on these repurchase agreements are Bank of America and Goldman Sachs. Interest rates on these repurchase agreements are fixed, but will be reset on a short-term basis.

(K)	Issued in April 2006 and July 2007. See Note 4 regarding the securitizations of Subprime Portfolios I and II.

(L)	LIBOR + 2.25% after April 2016.

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, our cash flow and liquidity are negatively impacted upon such a failure. As of September 30, 2011, CDOs IV and VI were not in compliance with their applicable over collateralization tests.

In the first nine months of 2011, Newcastle repurchased $155.1 million face amount of CDO bonds and notes payable for $94.3 million. As a result, Newcastle extinguished $155.1 million face amount of CDO debt and notes payable and recorded a gain on extinguishment of debt of $60.4 million.