| INVESTMENTS IN EQUITY METHOD INVESTEES |
6. INVESTMENTS IN EQUITY METHOD INVESTEES
During
the first quarter of 2013, Newcastle entered into investments in joint ventures (“Excess MSR Joint Ventures”)
jointly controlled by Newcastle and Fortress-managed funds investing in Excess MSRs. Newcastle elected to record
these investments at fair value pursuant to the fair value option for financial instruments to provide users of the financial
statements with better information regarding the effects of prepayment risk and other market factors.
The following table summarizes the investments in equity method investees held by Newcastle at March 31, 2013:
| |
|
Newcastle’s Investment
|
|
|
Newcastle’s
Ownership Percentage
|
|
| |
|
|
|
|
|
|
|
Excess MSR Joint Ventures
|
|
$ |
102,588 |
|
|
|
50 |
% |
Summarized financial information related to Newcastle’s equity-method investees was as follows:
| |
|
March 31, 2013
|
|
|
Assets (A)
|
|
$ |
275,779 |
|
|
Debt
|
|
|
— |
|
|
Other Liabilities
|
|
|
(70,603 |
) |
|
Equity
|
|
$ |
205,176 |
|
|
Newcastle’s Investment
|
|
$ |
102,588 |
|
|
Ownership
|
|
|
50.0 |
% |
|
(A)
|
Includes $20.8 million of deposits related to investments which have not closed at March 31, 2013.
|
| |
|
Three Months
Ended March 31,
2013
|
|
|
Interest income
|
|
$ |
5,616 |
|
|
Other income
|
|
|
(3,154 |
) |
|
Expenses
|
|
|
(524 |
) |
|
Net Income (Loss)
|
|
$ |
1,938 |
|
The following is a summary of Newcastle’s Excess MSR investments made through equity method investees:
| |
|
March 31, 2013
|
|
|
|
|
|
|
|
|
March 31, 2013
|
|
| |
|
Unpaid
Principal
Balance(A)
|
|
|
Investee
Interest in
Excess MSR
|
|
|
Newcastle Interest
in Investees
|
|
|
Amortized
Cost Basis (B)
|
|
|
Carrying
Value (C)
|
|
|
Weighted Average
Yield
|
|
|
Weighted Average
Maturity
(Years) (D)
|
|
|
MSR Pool 6
|
|
$ |
11,821,572 |
|
|
|
66.7 |
% |
|
|
50.0 |
% |
|
$ |
42,388 |
|
|
$ |
41,453 |
|
|
|
17.4 |
% |
|
|
4.9 |
|
|
MSR Pool 6 - Recapture Agreement
|
|
|
— |
|
|
|
66.7 |
% |
|
|
50.0 |
% |
|
|
10,954 |
|
|
|
10,972 |
|
|
|
17.4 |
% |
|
|
10.7 |
|
|
MSR Pool 7
|
|
|
37,234,201 |
|
|
|
66.7 |
% |
|
|
50.0 |
% |
|
|
109,420 |
|
|
|
109,048 |
|
|
|
15.2 |
% |
|
|
5.1 |
|
|
MSR Pool 7 - Recapture Agreement
|
|
|
— |
|
|
|
66.7 |
% |
|
|
50.0 |
% |
|
|
23,296 |
|
|
|
23,164 |
|
|
|
15.2 |
% |
|
|
12.0 |
|
|
MSR Pool 8
|
|
|
17,104,429 |
|
|
|
66.7 |
% |
|
|
50.0 |
% |
|
|
58,748 |
|
|
|
57,177 |
|
|
|
15.0 |
% |
|
|
5.0 |
|
|
MSR Pool 8 - Recapture Agreement
|
|
|
— |
|
|
|
66.7 |
% |
|
|
50.0 |
% |
|
|
13,312 |
|
|
|
13,150 |
|
|
|
15.0 |
% |
|
|
11.7 |
|
| |
|
$ |
66,160,202 |
|
|
|
|
|
|
|
|
|
|
$ |
258,118 |
|
|
$ |
254,964 |
|
|
|
15.6 |
% |
|
|
6.3 |
|
|
(A)
(B)
|
Pool 6 unpaid principal
balance is as of March 31, 2013. Pools 7 and 8 unpaid principal balances are as of February 28, 2013.
Represents the amortized cost basis of the equity method investees in which Newcastle holds a 50% interest. The amortized cost basis of the Recapture Agreements is determined based on the relative fair values of the Recapture Agreements and related Excess MSRs at the time they were acquired.
|
|
(C)
|
Represents the carrying value of the equity method investees in which Newcastle holds a 50% interest. Carrying value represents the fair value of the pools or Recapture Agreements, as applicable.
|
|
(D)
|
The weighted average maturity represents the weighted average expected timing of the receipt of cash flows of each investment.
|
On January 4, 2013, Newcastle, through a joint venture, co-invested in Excess MSRs on a portfolio of Ginnie Mae residential mortgage loans with a UPB of approximately $13 billion as of November 30, 2012. Nationstar acquired the related servicing rights from Bank of America in November 2012. Newcastle contributed approximately $28.9 million for a 50% interest in a joint venture which acquired an approximately 67% interest in the Excess MSRs on this portfolio. The remaining interests in the joint venture will be owned by a Fortress-managed fund and the remaining interest of approximately 33% in the Excess MSRs will be owned by Nationstar. As the servicer, Nationstar will perform all servicing and advancing functions, and it will retain the ancillary income, servicing obligations and liabilities associated with this portfolio. Under the terms of this investment, to the extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs will be shared on a pro rata basis by the joint venture and Nationstar, subject to certain limitations.
On
January 6, 2013 Newcastle, through a joint venture, agreed to co-invest in Excess MSRs on a portfolio of four pools of
residential mortgage loans with a UPB of approximately $215 billion as of November 30, 2012. Approximately 53% of
the loans in this portfolio are in private label securitizations, and the remainder are owned, insured or guaranteed by the
Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage
Association (“Ginnie Mae”). Nationstar has agreed to acquire the related servicing rights from Bank of America.
Newcastle committed to invest approximately $340 million (based on the November 30, 2012 UPB) for a 50% interest in a joint
venture which will acquire an approximately 67% interest in the Excess MSRs on this portfolio. The remaining interests in the
joint venture will be owned by a Fortress-managed fund and the remaining interest of approximately 33% in the Excess MSRs
will be owned by Nationstar. As of March 31, 2013, Newcastle had contributed approximately $80.7 million to the joint
ventures. As the servicer, Nationstar will perform all servicing and advancing functions, and it will retain the ancillary
income, servicing obligations and liabilities associated with this portfolio. Under the terms of this investment, to the
extent that any loans in the portfolio are refinanced by Nationstar, the resulting Excess MSRs will be shared on a pro rata
basis by the joint venture and Nationstar, subject to certain limitations. On January 31, 2013, Newcastle
completed the first closing of this co-investment. The first closing related to Excess MSRs on loans with an aggregate UPB of
approximately $58 billion as of December 31, 2012, that are owned, insured, or guaranteed by Fannie Mae or Freddie Mac. There
can be no assurance that Newcastle will complete this investment as anticipated or at all.
The table below summarizes the geographic distribution of the underlying residential mortgage loans of the Excess MSR investments made through equity method investees at March 31, 2013:
|
State Concentration
|
|
Percentage of Total
Outstanding
|
|
|
California
|
|
|
15.2 |
% |
|
Florida
|
|
|
7.9 |
% |
|
New York
|
|
|
7.6 |
% |
|
Texas
|
|
|
5.9 |
% |
|
New Jersey
|
|
|
4.8 |
% |
|
Washington
|
|
|
3.4 |
% |
|
Virginia
|
|
|
3.0 |
% |
|
Maryland
|
|
|
2.8 |
% |
|
Arizona
|
|
|
2.5 |
% |
|
Colorado
|
|
|
2.4 |
% |
|
Other U.S.
|
|
|
44.5 |
% |
| |
|
|
100.0 |
% |
|
(A)
|
Based on the information provided by the loan servicer as of the most recent remittance.
|
|