Note 6. Debt

Asset-Backed Securitization

In May 2014, the Company completed a securitization transaction resulting in $481.0 million in total gross proceeds, before issuance costs of $14.9 million. The transaction involves the issuance and sale of single-family rental pass-through certificates that represent beneficial ownership interests in a loan secured by 3,852 homes sold to an affiliate from the Company's portfolio of single-family properties. The loan has an initial term of two years, with three, 12-month extension options, resulting in a fully extended maturity date of June 9, 2019 and requires that we maintain certain covenants, including, but not limited to, a minimum debt yield on the collateral pool of properties. As of June 30, 2014, the Company was in compliance with all covenants under the loan agreement. The loan requires monthly payments of principal, based on 1.0% annual amortization of the initial loan balance, and interest, based on a duration-weighted blended interest rate of LIBOR plus 1.54%, subject to a LIBOR floor of 0.25%. Proceeds from this transaction were used to pay down the outstanding balance on the credit facility.

Additionally, as part of certain lender requirements in connection with the securitization transaction, we entered into an interest rate cap agreement for the initial two year term of the loan, with a LIBOR based strike rate equal to 3.85%. This interest rate cap agreement has been formally designated as a cash flow hedge at inception and will be regularly assessed for effectiveness on an on-going basis. During the three months ended June 30, 2014, our interest rate cap agreement was 100% effective as a cash flow hedge and, as a result, changes in fair value have been classified in accumulated other comprehensive loss. These amounts will subsequently be reclassified into earnings in the period which the hedged transaction affects earnings. Over the next 12 months, we estimate that $0.05 million will be reclassified as an increase to interest expense. The fair value of our interest rate cap agreement is estimated to be $0.03 million as of June 30, 2014 (see Note 15) and has been included in escrow deposits, prepaid expenses and other assets in the accompanying consolidated condensed balance sheets.

As the Company's asset-back securitization bears variable interest at LIBOR plus 1.54% and was recently entered into on May 21, 2014, management believes the carrying value of the asset-backed securitization as of June 30, 2014 reasonably approximates fair value, which has been estimated by discounting future cash flows at market rates (Level 2).

Credit facility

On March 7, 2013, we entered into a $500 million senior secured revolving credit facility with a financial institution. On September 30, 2013, we amended our credit facility to, among other things, expand our borrowing capacity to $800 million and extend the repayment period to September 30, 2018. The amount that may be borrowed under the credit facility will generally be based on 50% of the lower of cost or the fair value of our qualifying leased and un-leased properties and certain other measures based in part on the net income generated by our qualifying leased and un-leased properties, which is referred to as the "Borrowing Base." Borrowings under the credit facility are available through March 7, 2015, which may be extended for an additional year, subject to the satisfaction of certain financial covenant tests. Upon expiration of the credit facility period, any outstanding borrowings will convert to a term loan through September 30, 2018. All borrowings under the credit facility bear interest at 30 day LIBOR plus 2.75% until March 2017, and thereafter at 30 day LIBOR plus 3.125%.

The credit facility is secured by our Operating Partnership's membership interests in entities that own certain of our single-family properties and requires that we maintain financial covenants relating to the following matters: (i) minimum liquidity of cash, cash equivalents and borrowing capacity under any credit facilities in an aggregate amount of at least $15.0 million, of which at least $7.5 million must be in cash and cash equivalents; (ii) a maximum leverage ratio of 1.0 to 1.0; and (iii) tangible net worth (as defined) of not less than the sum of 85% of our tangible net worth as of September 30, 2013 plus 85% of the net proceeds of any additional equity capital raises completed on or after September 30, 2013. As of June 30, 2014, the Company was in compliance with all loan covenants and had $481.0 million in total outstanding borrowings under the credit facility. Management believes the carrying value of the credit facility as of June 30, 2014 reasonably approximates fair value, which has been estimated by discounting future cash flows at market rates (Level 2).

Interest Expense

The following table outlines our total gross interest, including unused commitment and other fees and amortization of deferred financing costs, and capitalized interest for the three and six months ended June 30, 2014 and 2013 (in thousands):

	For the Three Months Ended,						For the Six Months Ended,

	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Gross interest cost	$	6,298		$	2,028		$	10,728		$	2,398
Capitalized interest		(2,410	)		(2,028	)		(5,338	)		(2,028	)


Interest expense	$	3,888		$	—		$	5,390		$	370