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Derivative Instruments
 12 Months Ended
Dec. 31, 2012
Derivative Instruments

Note 9 – Derivative instruments

The Company uses interest rate swaps and caps to manage exposure to variable cash flows on portions of its borrowings under repurchase agreements. The Company’s repurchase agreements bear interest at a LIBOR-based variable rate and increases in LIBOR could negatively impact earnings. Interest rate swap and cap agreements allow the Company to receive a variable rate cash flow based on LIBOR and pay a fixed rate cash flow, mitigating the impact of this exposure.

The Company entered into interest rate swaps and forward-starting caps in an effort to economically hedge a portion of its floating-rate interest payments due under the Wells Facility as well as potential extensions of the collateral securing the Wells Facility borrowings. The Company’s derivative instruments consist of the following at December 31, 2012 and 2011:

 

            December 31, 2012     December 31, 2011  
     Balance Sheet Location      Notional
Value		     Estimated
Fair
Value		     Notional
Value		     Estimated
Fair
Value		  

Interest rate swaps

      Derivative instruments       $ 80,881      $ (156 )    $ 241,850      $ (666 ) 

Interest rate caps

      Derivative instruments         203,248 *      1        26,189 *      188   
       

 

 

      

 

 

  

Total derivative instruments

         $ (155 )      $ (478 ) 
       

 

 

      

 

 

  

 

* Represents the notional December 31, 2012 and 2011 but does not include forward-starting notionals.

The Company has an agreement with its derivative counterparty that contains a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

The following table summarizes the amounts recognized on the consolidated statements of operations related to the Company’s derivatives at December 31, 2012 and 2011.

 

          Amount of loss
recognized in
income		  
    

Location of Loss Recognized in Income

    2012     2011  

Interest rate swaps

    Loss on derivative instruments – realized *    $ (895 )    $ (1,831 ) 

Interest rate swaps

    Loss on derivative instruments – unrealized      510      $ 763   

Interest rate caps

    Loss on derivative instruments – unrealized      (187 )      (1,628 ) 
     

 

 

    

 

 

  

Total

       $ (572 )    $ (2,696 ) 
     

 

 

    

 

 

  

 

* Realized losses represent net amounts accrued for the Company’s derivative instruments during the period.