Quarterly report pursuant to Section 13 or 15(d)

DEBT OBLIGATIONS

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DEBT OBLIGATIONS
 9 Months Ended
Sep. 30, 2012
Debt Obligations  
DEBT OBLIGATIONS

6. DEBT OBLIGATIONS

 

The following table presents certain information regarding Newcastle’s debt obligations and related hedges at September 30, 2012:

 

                          Unhedged                 Face     Collateral     Aggregate Notional  
Debt Obligation/Collateral   Month
Issued		     Outstanding
Face
Amount		     Carrying
Value		     Final Stated Maturity   Weighted
Average
Funding Cost (A)		     Weighted Average
Funding
Cost (B)		     Weighted Average Maturity
(Years)		     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)		     Amount of Current Hedges (D)  
CDO Bonds Payable                                                                                  
CDO IV (E)     Mar 2004     $ 86,983     $ 86,872     Mar 2039     1.81 %     4.99 %     1.6     $ 76,103     $ 175,752     $ 165,292     $ 158,371       2.3     $ 48,891     $ 76,103  
CDO VI (E)     Apr 2005       91,469       91,469     Apr 2040     0.87 %     5.35 %     4.9       88,437       208,094       119,483       145,273       3.0       51,154       88,437  
CDO VIII     Nov 2006       529,337       528,278     Nov 2052     0.77 %     2.18 %     2.6       521,737       708,193       517,123       538,238       2.8       389,155       154,795  
CDO IX     May 2007       446,956       448,461     May 2052     0.57 %     0.57 %     2.6       446,956       672,126       543,431       551,501       2.8       328,276       —  
              1,154,745       1,155,080                   2.02 %     2.7       1,133,233       1,764,165       1,345,329       1,393,383       2.7       817,476       319,335  
Other Bonds and Notes Payable                                                                                                    
MH loans Portfolio I (F)     Apr 2010       73,431       69,441     Jul 2035     6.20 %     6.20 %     4.2       —       122,453       102,746       102,746       6.9       978       —  
MH loans Portfolio II     May 2011       123,797       122,961     Dec 2033     4.35 %     4.35 %     4.0       —       158,542       155,933       155,933       5.7       26,834       —  
Residential Mortgage Loans (G)     Aug 2006       5,181       5,181     Dec 2034     LIBOR+ 0.90%     1.11 %     6.4       5,181       53,384       39,208       39,208       6.6       53,384       —  
              202,409       197,583                   4.92 %     4.2       5,181       334,379       297,887       297,887       6.3       81,196       —  
Repurchase Agreements (H)                                                                                                            
CDO securities (I)     Dec 2011       7,157       7,157     Oct 2012     LIBOR+ 2.00%      2.21 %     0.0       7,157       —       —       —       —       —       —  
Non-agency RMBS (J)     Jul 2012       59,646       59,646     Oct 2012     LIBOR+ 2.00%     2.21 %     0.0       59,646       127,549       87,580       90,428       2.8       127,549       —  
FNMA/FHLMC securities (K)     Various       538,524       538,524     Oct 2012     0.42 %     0.42 %     0.1       538,524       534,801       572,356       577,132       4.3       534,801       —  
              605,327       605,327                   0.62 %     0.1       605,327       662,350       659,936       667,560       4.0       662,350       —  
Mortgage Notes Payable                                                                                                            
Senior living facilities     Jul 2012       88,400       88,400     Aug 2019     3.45 %     3.45 %     6.5       23,400        N/A       141,553       141,553        N/A       —       23,400  
              88,400       88,400                   3.45 %     6.5       23,400        N/A       141,553       141,553        N/A       —       23,400  
Corporate                                                                                                            
Junior subordinated notes payable     Mar 2006       51,004       51,245     Apr 2035     7.57% (M)       7.41 %     22.6       —       —       —       —       —       —       —  
              51,004       51,245                   7.41 %     22.6       —       —       —       —       —       —       —  
Subtotal debt obligations             2,101,885       2,097,635                   2.08 %     2.7     $ 1,767,141     $ 2,760,894     $ 2,444,705     $ 2,500,383       3.5     $ 1,561,022     $ 342,735  
Financing on subprime mortgage loans subject  to call option     (L)       406,217       405,525                                                                                      
Total debt obligations           $ 2,508,102     $ 2,503,160                                                                                      

 

(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) Excluding (i) restricted cash held in CDOs to be used for principal and interest payments of CDO debt, and (ii) operating cash in senior living entities.
(D) Including a $23.4 million notional amount of interest rate cap agreement for the mortgage notes payable and a $76.1 million and $88.4 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) CDO VI was not in compliance with its applicable over collateralization tests as of September 30, 2012. Newcastle is not receiving cash flows from these CDOs (other than senior management fees and cash flows on senior classes of bonds that were repurchased), since net interest is being used to repay debt, and expects CDO VI to remain out of compliance for the foreseeable future.
(F) Excluding $20.5 million face amount of other bonds payable relating to MH loans Portfolio I sold to certain Newcastle CDOs, which were eliminated in consolidation.
(G) Excluding $6.6 million face amount of notes payable relating to residential mortgage loans sold to a Newcastle CDO, which were eliminated in consolidation.
(H) These repurchase agreements had $0.1 million of associated accrued interest payable at September 30, 2012. $395.3 million face amount of these repurchase agreements were renewed subsequent to September 30, 2012.
(I) The counterparty of this repurchase agreement is Bank of America. It is secured by $26.4 million face amount of senior notes issued by Newcastle CDO VI, which is eliminated in consolidation. The maximum recourse to Newcastle is $1.8 million.
(J) The counterparty of these repurchase agreements is Credit Suisse.
(K) The counterparties on these repurchase agreements are Bank of America, Citi, and Goldman Sachs. Interest rates on these repurchase agreements are fixed, but will be reset on a short-term basis.
(L) Issued in April 2006 and July 2007. See Note 4 regarding the securitizations of Subprime Portfolios I and II.
(M) 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, 2012, CDO VI was not in compliance with its over collateralization tests.

 

In the first nine months of 2012, Newcastle repurchased $34.1 million face amount of CDO bonds payable for $10.8 million. As a result, Newcastle extinguished $34.1 million face amount of CDO bonds payable and recorded a gain on extinguishment of debt of $23.1 million.

 

Newcastle’s non-CDO financings contain various customary loan covenants. Newcastle was in compliance with all of the covenants in its non-CDO financings as of September 30, 2012.