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, 2015

The following table presents certain information regarding Newcastle’s debt obligations at September 30, 2015:



	September 30, 2015
														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 (C)		Amortized Cost Basis (C)		Carrying Value (C)		Weighted Average Life (Years)	Floating Rate Face Amount (C)
CDO Bonds Payable
CDO VI (D)	Apr 2005	$	92,812	$	92,812	Apr 2040	0.89%		0.89	%	4.1	$	89,123	$	72,663	$	26,960	$	49,398	3.4	$	12,688
		92,812		92,812					0.89	%	4.1	89,123		72,663		26,960		49,398		3.4	12,688
Other Bonds and Notes Payable
NCT 2013-VI IMM-1 (E)	Nov 2013	8,177		7,494		Apr 2040	LIBOR+0.25%		17.50	%	0.4	8,177		N/A		N/A		N/A		N/A	N/A
		8,177		7,494					17.50	%	0.4	8,177		N/A		N/A		N/A		N/A	N/A
Repurchase Agreements (F)
FNMA/FHLMC Securities	Sep 2015	345,859		345,859		Oct 2015	0.49%		0.49	%	0.1	—		348,920		363,981		363,981		7.7	—
Golf Loans (G)	Aug 2015	70,000		69,583		Feb 2016	LIBOR+3.50%		6.15	%	0.4	70,000		N/A		N/A		N/A		N/A	N/A
		415,859		415,442					1.43	%	0.2	70,000		348,920		363,981		363,981		7.7	—
Golf Credit Facilities
Vineyard II	Dec 1993	200		200		Dec 2043	2.11%		2.11	%	28.2	200		N/A		N/A		N/A		N/A	N/A
Capital Leases (Equipment)	May 2014 - Sep 2015	11,803		11,803		May 2021	3.22% to 11.54%		6.57	%	4.8	—		N/A		N/A		N/A		N/A	N/A
		12,003		12,003					6.51	%	5.2	200		N/A		N/A		N/A		N/A	N/A
Corporate
Junior subordinated notes payable	Mar 2006	51,004		51,226		Apr 2035	7.57%	(H)	7.36	%	19.6	—		N/A		N/A		N/A		N/A	N/A
		51,004		51,226					7.36	%	19.6	—		N/A		N/A		N/A		N/A	N/A
Subtotal debt obligations		579,855		578,977					2.18	%	2.6	$	167,500	$	421,583	$	390,941	$	413,379	7.0	$	12,688
Financing on subprime mortgage loans subject to call option (I)		392,342		392,342
Total debt obligations		$	972,197	$	971,319


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


(B)	Including the effect of applicable hedges and deferred financing cost. For fixed rate mortgage notes payable, the weighted average funding cost is calculated based on the average rate during the nine months ended September 30, 2015.


(C)	Excluding restricted cash held in CDOs to be used for principal and interest payments of CDO debt.


(D)	This CDO was not in compliance with its applicable over collateralization tests as of September 30, 2015. Newcastle is not receiving cash flows from this CDO (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 this CDO to remain out of compliance for the foreseeable future.


(E)	Represents financings of previously repurchased Newcastle CDO bonds for which the collateral is eliminated in consolidation.

(F)

These repurchase agreements had $0.3 million of accrued interest payable at September 30, 2015. The counterparties on these repurchase agreements are Nomura ($196.9 million), Morgan Stanley ($98.8 million), Citi ($50.2 million) and Credit Suisse ($70.0 million). Newcastle has margin exposures on a total of $415.9 million repurchase agreements related to the financing of FNMA/FHLMC securities and Golf loans. 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. $345.9 million of repurchase agreements were repaid in October 2015 as part of the sale of the FNMA/FHLMC securities.


(G)	The golf repurchase agreement is collateralized by assets of the Golf business. The carrying amount of the golf repurchase agreement is reported net of deferred financing costs of $0.4 million as of September 30, 2015.


(H)	LIBOR +2.25% after April 2016.


(I)	Issued in April 2006 and July 2007 and secured by the general credit of Newcastle. See Note 6 regarding the securitizations of Subprime Portfolio I and II.

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 cashflows 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 of September 30, 2015, CDO VI was not in compliance with its over collateralization tests and as a result, Newcastle’s cashflows and liquidity were negatively impacted due to the failure. Based upon Newcastle's current calculations, Newcastle expects this CDO to remain out of compliance for the foreseeable future.

In March 2015, Newcastle sold Agency RMBS with a face amount of approximately $380.4 million at an average price of 104.72% for a gain of $5.9 million and repaid associated repurchase agreements. Also in March 2015, Newcastle financed $389.1 million face amount of purchased FNMA/FHLMC securities with repurchase agreements with carrying value of $386.1 million as of March 31, 2015. These repurchase agreements bore interest at 0.37%, matured in April 2015 and were subject to customary margin provisions.

During the second quarter of 2015, approximately $60.3 million of Newcastle CDO VIII notes were repaid primarily due to the sale of securities and loans. See Notes 5 and 6. As a result of the repayment of the Newcastle CDO VIII notes, Newcastle also repaid $13.3 million of repurchase agreements associated with Newcastle CDO VIII.

During the second quarter of 2015, approximately $51.4 million of Newcastle CDO IX notes were repaid primarily due to the sales and paydown of securities and loans. See Notes 5 and 6. As a result of the repayment of the Newcastle CDO IX notes, Newcastle also repaid $22.3 million of repurchase agreements associated with Newcastle CDO IX.

In June 2015, Newcastle repurchased $11.5 million face amount of CDO bonds payable issued by Newcastle CDO VIII at a price of 95.50% of par for total proceeds of $11.0 million. As a result, Newcastle extinguished $11.5 million face amount of CDO bonds payable and recorded a gain on extinguishment of debt of $0.5 million.

In June 2015, Newcastle entered into a trade to sell $380.4 million face amount of agency RMBS at an average price of 103.13% for total proceeds of approximately $392.3 million and recognized a loss of approximately $5.9 million. This transaction settled in July 2015 and Newcastle repaid $375.7 million of outstanding repurchase agreement liabilities in connection with this sale.

In August 2015, Newcastle acquired from a third party $51.4 million outstanding face amount of first lien golf debt at a price of 90.0% of par, or $46.3 million, and $105.6 million outstanding face amount of second lien golf debt at a price of 90.0% of par, or $95.0 million. The purchases were funded with $71.3 million cash and $70.0 million of short-term debt financing. Newcastle recorded a gain on extinguishment of debt of $15.4 million.

In September 2015, Newcastle sold $250.4 million face amount of agency RMBS at an average price of 103.83% of par for total proceeds of approximately $260.0 million and recognized a gain of $2.5 million. Newcastle repaid $250.1 million of outstanding repurchase agreement liabilities in connection with this sale.

In September 2015, Newcastle entered into a trade to sell $348.9 million face amount of agency RMBS at an average price of 104.32% of par for total proceeds of approximately $364.0 million and recognized a gain of $5.1 million. Newcastle repaid $345.9 million of outstanding repurchase agreement liabilities in connection with this sale. Newcastle settled on this trade in October 2015.

In September 2015, Newcastle entered into a trade to purchase $354.8 million face amount of agency RMBS at an average price of 104.42% of par for total proceeds of approximately $370.5 million. This transaction was financed with $352.6 million of repurchase agreements and the trade settled in October 2015.

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 48 to 66 months with a purchase price option at the termination of the lease.

The future minimum lease payments required under the capital leases and the present value of the net minimum lease payments as of September 30, 2015 are as follows:



October 1, 2015 - December 31, 2015	$	672
2016	2,690
2017	2,690
2018	2,683
2019	2,627
2020 and thereafter	2,669
Total minimum lease payments	14,031
Less: imputed interest	(2,228		)
Present value of net minimum lease payments	$	11,803

Newcastle’s non-CDO financings and golf credit facilities contain various customary loan covenants. Newcastle was in compliance with all of these covenants as of September 30, 2015.