DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

8. 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, 2020 and December 31, 2019 ($ in thousands):

March 31, 2020



			Fair Value				Remaining Maturity (years)
Contract Type	Notional		Asset(1)		Liability(1)		Remaining Maturity (years)

Caps
1 Month LIBOR	$	69,571	$	—	$	—	0.11
Futures
5-year Swap	24,400		191		—		0.25
10-year Swap	76,700		600		—		0.25
5-year U.S. Treasury Note	20,300		159		—		0.25
Total futures	121,400		950		—
Total derivatives	$	190,971	$	950	$	—

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

December 31, 2019



			Fair Value				Remaining Maturity (years)
Contract Type	Notional		Asset(1)		Liability(1)		Remaining Maturity (years)

Caps
1MO LIBOR	$	69,571	$	—	$	—	0.36
Futures
5-year Swap	46,000		158		—		0.25
10-year Swap	149,800		516		—		0.25
5-year U.S. Treasury Note	1,100		4		—		0.25
Total futures	196,900		678		—
Credit Derivatives
S&P 500 Put Options	143,300		15		—		0.05
Total credit derivatives	143,300		15		—
Total derivatives	$	409,771	$	693	$	—

(1) Shown as derivative instruments, at fair value, in the accompanying 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 consolidated statements of operations for the three months ended March 31, 2020 and 2019 ($ in thousands):



	Three Months Ended March 31, 2020
	Unrealized Gain/(Loss)		Realized Gain/(Loss)			Net Result from Derivative Transactions

Contract Type
Futures	$	272	$	(15,946	)	$	(15,674	)
Credit Derivatives	111		128			239
Total	$	383	$	(15,818	)	$	(15,435	)



	Three Months Ended March 31, 2019
	Unrealized Gain/(Loss)			Realized Gain/(Loss)			Net Result from Derivative Transactions

Contract Type
Futures	$	2,557		$	(13,533	)	$	(10,976	)
Credit Derivatives	(66		)	8			(58		)
Total	$	2,491		$	(13,525	)	$	(11,034	)

The Company’s counterparties held $2.5 million and $3.5 million of cash margin as collateral for derivatives as of March 31, 2020 and December 31, 2019, respectively, which is included in restricted cash in the consolidated balance sheets.

Futures

Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a futures commission merchant. Interest rate futures that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate futures change.

The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended their rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures.