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DERIVATIVE INSTRUMENTS
 3 Months Ended
Mar. 31, 2014
DERIVATIVE INSTRUMENTS  
DERIVATIVE INSTRUMENTS

10.                     DERIVATIVE INSTRUMENTS

 

The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk.  The following is a breakdown of the derivatives outstanding as of March 31, 2014 and December 31, 2013:

 

March 31, 2014

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

Fair Value

 

Maturity

 

Contract Type

 

Notional

 

Asset(1)

 

Liability(1)

 

(years)

 

 

 

 

 

 

 

 

 

 

 

Futures

 

 

 

 

 

 

 

 

 

5-years U.S. T-Note

 

$

79,600,000

 

$

245,242

 

$

891

 

0.25

 

10-year U.S. T-Note

 

569,600,000

 

298,592

 

2,921,813

 

0.25

 

Total futures

 

649,200,000

 

543,834

 

2,922,704

 

 

 

Swaps

 

 

 

 

 

 

 

 

 

3MO LIB

 

121,000,000

 

—

 

6,878,440

 

4.27

 

Credit Derivatives

 

 

 

 

 

 

 

 

 

CMBX

 

10,000,000

 

211,170

 

—

 

8.38

 

CDX

 

33,500,000

 

—

 

610,815

 

4.73

 

S&P 500 PUT OPTION 3/4/14

 

1,900

 

83,918

 

—

 

0.47

 

Total credit derivatives

 

43,501,900

 

295,088

 

610,815

 

 

 

Total derivatives

 

$

813,701,900

 

$

838,922

 

$

10,411,959

 

 

 

 

December 31, 2013

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

Fair Value

 

Maturity

 

Contract Type

 

Notional

 

Asset(1)

 

Liability(1)

 

(years)

 

 

 

 

 

 

 

 

 

 

 

Caps

 

 

 

 

 

 

 

 

 

1MO LIB

 

$

71,250,000

 

$

—

 

$

—

 

0.14

 

Futures

 

 

 

 

 

 

 

 

 

5-years U.S. T-Note

 

$

45,000,000

 

$

402,719

 

$

—

 

0.25

 

10-year U.S. T-Note

 

753,700,000

 

7,589,466

 

—

 

0.25

 

Total futures

 

798,700,000

 

7,992,185

 

—

 

 

 

Swaps

 

 

 

 

 

 

 

 

 

3MO LIB

 

121,000,000

 

—

 

6,420,495

 

4.51

 

Credit Derivatives

 

 

 

 

 

 

 

 

 

CMBX

 

10,000,000

 

252,170

 

—

 

8.38

 

CDX

 

33,500,000

 

—

 

610,538

 

4.97

 

Total credit derivatives

 

43,500,000

 

252,170

 

610,538

 

 

 

Total derivatives

 

$

1,034,450,000

 

$

8,244,355

 

$

7,031,033

 

 

 

 

 

(1)         Included in derivative instruments, at fair value, in the accompanying combined consolidated balance sheets.

 

The following table indicates the net realized gains/(losses) and unrealized appreciation/(depreciation) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the combined consolidated statements of operations for the three months ended March 31, 2014 and 2013:

 

 

 

Three Months Ended March 31, 2014

 

 

 

Unrealized
Gain/(Loss)

 

Realized
Gain/(Loss)

 

Net Result
from
Derivative
Transactions

 

Contract Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Futures

 

(10,371,054

)

(14,781,407

)

(25,152,461

)

Swaps

 

(179,320

)

(800,138

)

(979,458

)

Credit Derivatives

 

42,640

 

(197,387

)

(154,747

)

Total

 

$

(10,507,734

)

$

(15,778,932

)

$

(26,286,666

)

 

 

 

Three Months Ended March 31, 2013

 

 

 

Unrealized
Gain/(Loss)

 

Realized
Gain/(Loss)

 

Net Result
from
Derivative
Transactions

 

Contract Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Caps

 

$

819

 

$

—

 

$

819

 

Futures

 

(7,019,081

)

8,774,316

 

1,755,235

 

Swaps

 

3,423,323

 

(1,346,948

)

2,076,375

 

Credit Derivatives

 

(231,017

)

(1,331,703

)

(1,562,720

)

Total

 

$

(3,825,956

)

$

6,095,665

 

$

2,269,709

 

 

The Company’s counterparties held $25,958,202 and $21,959,114 of cash margin as collateral for derivatives as of March 31, 2014 and December 31, 2013, respectively, which is included in cash collateral held by brokers in the combined consolidated balance sheets.

 

Credit Risk-Related Contingent Features

 

The Company has agreements with certain of its derivative counterparties that contain a provision whereby if the Company defaults on certain of its indebtedness, the Company could also be declared in default on its derivatives, resulting in an acceleration of payment under the derivatives.  As of March 31, 2014 and December 31, 2013, the Company was in compliance with these requirements and not in default on its indebtedness.  As of March 31, 2014 and December 31, 2013, there was $25,958,202 and $21,959,114 of cash collateral held by the derivative counterparties for these derivatives, respectively.  No additional cash would be required to be posted if the acceleration of payment under the derivatives was triggered.