v3.20.1
Financial Derivatives (Tables)
 3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Derivative Instruments
The following table details the fair value of the Company's holdings of financial derivatives as of March 31, 2020 and December 31, 2019:
 
 
March 31, 2020
 
December 31, 2019
(In thousands)
 
 
 
 
Financial derivatives–assets, at fair value:
 
 
 
 
TBA securities purchase contracts
 
$
302

 
$
90

TBA securities sale contracts
 
249

 
506

Fixed payer interest rate swaps
 
—

 
3,914

Fixed receiver interest rate swaps
 
8,592

 
1,554

Credit default swaps on asset-backed securities
 
353

 
993

Credit default swaps on asset-backed indices
 
14,276

 
3,319

Credit default swaps on corporate bonds
 
1,202

 
2

Credit default swaps on corporate bond indices
 
3,732

 
5,599

Total return swaps
 
37

 
620

Options
 
2,658

 
—

Futures
 
37

 
148

Forwards
 
188

 
43

Warrants
 
126

 
—

Total financial derivatives–assets, at fair value
 
31,752

 
16,788

Financial derivatives–liabilities, at fair value:
 
 
 
 
TBA securities sale contracts
 
(6,391
)
 
(1,012
)
Fixed payer interest rate swaps
 
(31,959
)
 
(8,513
)
Fixed receiver interest rate swaps
 
(327
)
 
(206
)
Credit default swaps on asset-backed indices
 
(162
)
 
(250
)
Credit default swaps on corporate bonds
 
(62
)
 
(1,693
)
Credit default swaps on corporate bond indices
 
(1,922
)
 
(14,524
)
Total return swaps
 
(839
)
 
(1,209
)
Futures
 
(6,049
)
 
(45
)
Forwards
 
(61
)
 
(169
)
Total financial derivatives–liabilities, at fair value
 
(47,772
)
 
(27,621
)
Total
 
$
(16,020
)
 
$
(10,833
)
Schedule of Interest Rate Derivatives [Table Text Block]
The following tables provide information about the Company's fixed payer interest rate swaps as of March 31, 2020 and December 31, 2019:
March 31, 2020:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2020
 
$
5,600

 
$
(28
)
 
1.64
%
 
1.23
%
 
0.24
2021
 
160,029

 
(2,788
)
 
1.86

 
1.52

 
1.26
2022
 
142,747

 
(1,854
)
 
1.16

 
1.40

 
1.90
2023
 
101,012

 
(5,098
)
 
2.06

 
1.20

 
3.04
2025
 
58,500

 
(887
)
 
0.82

 
0.22

 
4.99
2026
 
28,104

 
(1,264
)
 
1.25

 
1.45

 
6.25
2028
 
32,942

 
(4,688
)
 
2.40

 
1.28

 
8.09
2029
 
92,594

 
(9,600
)
 
1.78

 
1.46

 
9.54
2030
 
67,936

 
(2,563
)
 
1.10

 
1.28

 
9.94
2036
 
1,100

 
(108
)
 
1.45

 
1.45

 
15.89
2049
 
5,796

 
(3,081
)
 
2.89

 
1.91

 
28.78
Total
 
$
696,360

 
$
(31,959
)
 
1.58
%
 
1.30
%
 
4.68
December 31, 2019:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount(1)
 
Fair Value(1)
 
Pay Rate(2)(3)
 
Receive Rate(2)
 
Remaining Years to Maturity(4)
 
 
(In thousands)
 
 
 
 
 
 
2020
 
$
68,607

 
$
(234
)
 
1.74
%
 
1.93
%
 
0.24
2021
 
268,929

 
(419
)
 
1.73

 
1.95

 
1.64
2022
 
31,350

 
9

 
1.65

 
1.93

 
2.14
2023
 
101,012

 
(1,265
)
 
2.06

 
1.91

 
3.29
2024
 
13,000

 
99

 
1.56

 
1.89

 
4.90
2025
 
12,800

 
(24
)
 
n/a

 
n/a

 
5.22
2026
 
59,902

 
1,946

 
1.24

 
1.94

 
6.50
2028
 
32,942

 
(1,634
)
 
2.40

 
1.93

 
8.34
2029
 
136,838

 
(2,018
)
 
2.02

 
1.96

 
9.61
2030
 
685

 
(32
)
 
2.38

 
1.90

 
10.90
2036
 
1,100

 
87

 
1.45

 
1.94

 
16.14
2049
 
5,796

 
(1,114
)
 
2.89

 
2.09

 
29.03
Total
 
$
732,961

 
$
(4,599
)
 
1.83
%
 
1.94
%
 
4.31
(1)
Includes forward-starting interest rate swaps with a notional amount of $20.9 million and fair value of $(41) thousand.
(2)
Excludes forward-starting interest rate swaps.
(3)
Including forward-starting interest rate swaps the total weighted average pay rate was 1.83%.
(4)
Includes forward-starting interest rate swaps, all of which start within six months of period end.
The following tables provide information about the Company's fixed receiver interest rate swaps as of March 31, 2020 and December 31, 2019:
March 31, 2020:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2021
 
$
12,950

 
$
253

 
0.90
%
 
1.75
%
 
1.46
2022
 
87,683

 
1,184

 
1.12

 
1.33

 
1.95
2023
 
48,657

 
2,340

 
1.18

 
2.00

 
3.01
2024
 
11,342

 
895

 
1.91

 
2.33

 
3.98
2025
 
134,876

 
238

 
1.22

 
0.55

 
4.98
2027
 
25,108

 
28

 
0.00

 
0.63

 
7.01
2029
 
9,800

 
1,011

 
1.51

 
1.78

 
9.52
2030
 
103,948

 
2,316

 
1.15

 
0.95

 
9.95
Total
 
$
434,364

 
$
8,265

 
1.12
%
 
1.08
%
 
5.43
December 31, 2019:
 
 
 
 
 
 
Weighted Average
Maturity
 
Notional Amount
 
Fair Value
 
Pay Rate
 
Receive Rate
 
Remaining Years to Maturity
 
 
(In thousands)
 
 
 
 
 
 
2021
 
$
181,950

 
$
(49
)
 
1.89
%
 
1.67
%
 
1.84
2022
 
53,974

 
441

 
1.91

 
1.85

 
2.17
2023
 
48,657

 
709

 
1.92

 
2.00

 
3.26
2024
 
11,342

 
306

 
2.09

 
2.33

 
4.23
2029
 
9,800

 
(59
)
 
1.91

 
1.78

 
9.77
Total
 
$
305,723

 
$
1,348

 
1.91
%
 
1.78
%
 
2.47
Schedule of Credit Default Swaps [Table Text Block]
The following table provides information about the Company's credit default swaps as of March 31, 2020 and December 31, 2019:
 
 
As of
 
 
March 31, 2020
 
December 31, 2019
Type(1)
 
Notional
 
Fair Value
 
Weighted Average Remaining Term (Years)
 
Notional
 
Fair Value
 
Weighted Average Remaining Term (Years)
($ in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
Asset:
 
 
 
 
 
 
 
 
 
 
 
 
Long:
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed indices
 
$
474

 
$
5

 
17.75

 
$
695

 
$
10

 
23.80

Credit default swaps on corporate bonds
 
—

 
—

 
—

 
430

 
2

 
0.47

Credit default swaps on corporate bond indices
 
32,159

 
11

 
2.72

 
130,707

 
5,547

 
2.42

Short:
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed securities
 
(998
)
 
353

 
15.46

 
(2,640
)
 
993

 
15.63

Credit default swaps on asset-backed indices
 
(63,528
)
 
14,271

 
37.70

 
(63,515
)
 
3,309

 
38.40

Credit default swaps on corporate bonds
 
(6,200
)
 
1,202

 
4.73

 
—

 
—

 
—

Credit default swaps on corporate bond indices
 
(73,826
)
 
3,721

 
2.95

 
(1,997
)
 
52

 
3.97

Liability:
 
 
 
 
 
 
 
 
 
 
 
 
Long:
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed indices
 
523

 
(162
)
 
32.79

 
344

 
(145
)
 
29.35

Credit default swaps on corporate bonds
 
430

 
(3
)
 
0.22

 
—

 
—

 
—

Credit default swaps on corporate bond indices
 
40,438

 
(1,843
)
 
3.59

 
—

 
—

 
—

Short:
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on asset-backed indices
 
(1
)
 
—

 
29.76

 
(4,501
)
 
(105
)
 
40.31

Credit default swaps on corporate bonds
 
(2,800
)
 
(59
)
 
0.67

 
(10,800
)
 
(1,693
)
 
3.92

Credit default swaps on corporate bond indices
 
(57,518
)
 
(79
)
 
1.74

 
(250,088
)
 
(14,524
)
 
2.51

 
 
$
(130,847
)
 
$
17,417

 
19.11

 
$
(201,365
)
 
$
(6,554
)
 
14.88

(1)
Long notional represents contracts where the Company has written protection and short notional represents contracts where the Company has purchased protection.
Schedule of Futures Contracts [Table Text Block]
The following table provides information about the Company's long and short positions in futures as of March 31, 2020 and December 31, 2019:
 
 
As of
 
 
March 31, 2020
 
December 31, 2019
Description
 
Notional Amount
 
Fair Value
 
Remaining Months to Expiration
 
Notional Amount
 
Fair Value
 
Remaining Months to Expiration
 
 
(In thousands)
 
 
 
(In thousands)
 
 
Long Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury futures
 
$
1,900

 
$
37

 
2.67
 
$
—

 
$
—

 
—

Short Contracts:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury futures
 
(7,000
)
 
(43
)
 
2.53
 
(16,000
)
 
148

 
2.77

Eurodollar futures
 
(172,100
)
 
(6,006
)
 
2.96
 
(14,000
)
 
(45
)
 
4.05

Total, net
 
$
(177,200
)
 
$
(6,012
)
 
2.95
 
$
(30,000
)
 
$
103

 
3.37
Schedule of Options Contracts [Table Text Block]
The following table provides information about the Company's options contracts as of March 31, 2020. The Company did not have any options contracts as of December 31, 2019:
Option
 
Underlying Swap
Type
 
Fair Value
 
Months to Expiration
 
Notional Amount
 
Term (Years)
 
Fixed Rate
($ in thousands)
 
 
 
 
 
 
 
 
 
 
Put options on credit default swaps on corporate bond indices (1)
 
$
2,658

 
0.51

 
$
19,700

 
5.00
 
5.00
%
(1)
Represents the option on the part of a counterparty to enter into a credit default swap on a corporate bond index whereby the Company would receive a fixed rate and pay credit protection payments.
Schedule of Derivative Warrant Contracts [Table Text Block]
Warrants
The following table provides information about the Company's warrants contracts to purchase shares as of March 31, 2020 and December 31, 2019:
 
 
As of March, 31, 2020
 
As of December, 31, 2019
Description
 
Number of Shares Underlying Warrant
 
Fair Value
 
Remaining Years to Expiration
 
Number of Shares Underlying Warrant
 
Fair Value
 
Remaining Years to Expiration
 
 
(In thousands)
 
 
 
(In thousands)
 
 
Warrants
 
1,546

 
$
126

 
2.58
 
1,515

 
$
—

 
2.82
Schedule of TBA securities [Table Text Block]
As of March 31, 2020 and December 31, 2019, the Company had outstanding TBA purchase and sale contracts as follows:
 
 
As of March 31, 2020
 
As of December 31, 2019
TBA Securities
 
Notional Amount(1)
 
Cost
Basis(2)
 
Market Value(3)
 
Net Carrying Value(4)
 
Notional Amount(1)
 
Cost
Basis(2)
 
Market Value(3)
 
Net Carrying Value(4)
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Purchase contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
$
28,400

 
$
29,235

 
$
29,537

 
$
302

 
$
40,100

 
$
40,585

 
$
40,675

 
$
90

 
 
28,400

 
29,235

 
29,537

 
302

 
40,100

 
40,585

 
40,675

 
90

Sale contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
(44,697
)
 
(48,301
)
 
(48,052
)
 
249

 
(319,981
)
 
(332,080
)
 
(331,574
)
 
506

Liabilities
 
(413,175
)
 
(431,820
)
 
(438,211
)
 
(6,391
)
 
(773,749
)
 
(806,568
)
 
(807,580
)
 
(1,012
)
 
 
(457,872
)
 
(480,121
)
 
(486,263
)
 
(6,142
)
 
(1,093,730
)
 
(1,138,648
)
 
(1,139,154
)
 
(506
)
Total TBA securities, net
 
$
(429,472
)
 
$
(450,886
)
 
$
(456,726
)
 
$
(5,840
)
 
$
(1,053,630
)
 
$
(1,098,063
)
 
$
(1,098,479
)
 
$
(416
)
(1)
Notional amount represents the principal balance of the underlying Agency RMBS.
(2)
Cost basis represents the forward price to be paid (received) for the underlying Agency RMBS.
(3)
Market value represents the current market value of the underlying Agency RMBS (on a forward delivery basis) as of period end.
(4)
Net carrying value represents the difference between the market value of the TBA contract as of period end and the cost basis, and is reported in Financial derivatives-assets, at fair value and Financial derivatives-liabilities, at fair value on the Condensed Consolidated Balance Sheet.
Schedule of Gains and Losses on Derivative Contracts
Gains and losses on the Company's derivative contracts for the three-month periods ended March 31, 2020 and 2019 are summarized in the tables below:
March 31, 2020:
Derivative Type
 
Primary 
Risk
Exposure
 
Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps
 
Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps(1)
 
Net Realized Gains (Losses) on Financial Derivatives(1)
 
Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps
 
Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps(2)
 
Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest Rate
 
$
143

 
$
(6,384
)
 
$
(6,241
)
 
$
(111
)
 
$
(20,020
)
 
$
(20,131
)
Credit default swaps on asset-backed securities
 
Credit
 
 
 
(994
)
 
(994
)
 
 
 
917

 
917

Credit default swaps on asset-backed indices
 
Credit
 
 
 
(556
)
 
(556
)
 
 
 
12,524

 
12,524

Credit default swaps on corporate bond indices
 
Credit
 
 
 
579

 
579

 
 
 
4,116

 
4,116

Credit default swaps on corporate bonds
 
Credit
 
 
 
94

 
94

 
 
 
1,527

 
1,527

Total return swaps
 
Credit
 
 
 
(1,571
)
 
(1,571
)
 
 
 
(213
)
 
(213
)
TBAs
 
Interest Rate
 
 
 
(3,173
)
 
(3,173
)
 
 
 
(5,423
)
 
(5,423
)
Futures
 
Interest Rate
 
 
 
(1,122
)
 
(1,122
)
 
 
 
(6,115
)
 
(6,115
)
Forwards
 
Currency
 
 
 
592

 
592

 
 
 
253

 
253

Warrants
 
Equity Market/Credit
 
 
 
—

 
—

 
 
 
20

 
20

Options
 
Credit
 
 
 
—

 
—

 
 
 
2,558

 
2,558

Total
 
 
 
$
143

 
$
(12,535
)
 
$
(12,392
)
 
$
(111
)
 
$
(9,856
)
 
$
(9,967
)
(1)
Includes gain/(loss) on foreign currency transactions on financial derivatives in the amount of $14 thousand for the three-month period ended March 31, 2020, which is included on the Condensed Consolidated Statement of Operations in Other, net.
(2)
Includes foreign currency remeasurement on financial derivatives in the amount of $17 thousand for the three-month period ended March 31, 2020, which is included on the Condensed Consolidated Statement of Operations in Other, net.
March 31, 2019:
Derivative Type
 
Primary 
Risk
Exposure
 
Net Realized Gains (Losses) on Periodic Settlements of Interest Rate Swaps
 
Net Realized Gains (Losses) on Financial Derivatives Other Than Periodic Settlements of Interest Rate Swaps(1)
 
Net Realized Gains (Losses) on Financial Derivatives(1)
 
Change in Net Unrealized Gains (Losses) on Accrued Periodic Settlements of Interest Rate Swaps
 
Change in Net Unrealized Gains (Losses) on Financial Derivatives Other Than on Accrued Periodic Settlements of Interest Rate Swaps(2)
 
Change in Net Unrealized Gains (Losses) on Financial Derivatives(2)
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest Rate
 
$
719

 
$
1,458

 
$
2,177

 
$
(275
)
 
$
(5,774
)
 
$
(6,049
)
Credit default swaps on asset-backed securities
 
Credit
 
 
 
275

 
275

 
 
 
(239
)
 
(239
)
Credit default swaps on asset-backed indices
 
Credit
 
 
 
(746
)
 
(746
)
 
 
 
(548
)
 
(548
)
Credit default swaps on corporate bond indices
 
Credit
 
 
 
(2,513
)
 
(2,513
)
 
 
 
(2,407
)
 
(2,407
)
Credit default swaps on corporate bonds
 
Credit
 
 
 
(425
)
 
(425
)
 
 
 
766

 
766

Total return swaps
 
Equity Market/Credit
 
 
 
(1,298
)
 
(1,298
)
 
 
 
129

 
129

TBAs
 
Interest Rate
 
 
 
(6,435
)
 
(6,435
)
 
 
 
1,898

 
1,898

Futures
 
Interest Rate/Currency
 
 
 
(2,433
)
 
(2,433
)
 
 
 
359

 
359

Forwards
 
Currency
 
 
 
(114
)
 
(114
)
 
 
 
423

 
423

Options
 
Interest Rate
 
 
 
(33
)
 
(33
)
 
 
 
—

 
—

Total
 
 
 
$
719

 
$
(12,264
)
 
$
(11,545
)
 
$
(275
)
 
$
(5,393
)
 
$
(5,668
)
(1)
Includes gain/(loss) on foreign currency transactions on financial derivatives in the amount of $25 thousand for the three-month period ended March 31, 2019, which is included on the Condensed Consolidated Statement of Operations in Other, net.
(2)
Includes foreign currency remeasurement on financial derivatives in the amount of $21 thousand for the three-month period ended March 31, 2019, which is included on the Condensed Consolidated Statement of Operations in Other, net.
Derivative activity, volume
The table below details the average notional values of the Company's financial derivatives, using absolute value of month end notional values, for the three-month period ended March 31, 2020 and year ended December 31, 2019:
Derivative Type
 
Three-Month
Period Ended
March 31, 2020
 
Year Ended
December 31, 2019
(In thousands)
 
 
 
 
Interest rate swaps
 
$
1,194,366

 
$
731,941

TBAs
 
969,311

 
973,331

Credit default swaps
 
328,023

 
399,316

Total return swaps
 
12,626

 
39,434

Futures
 
110,200

 
167,708

Options
 
4,876

 
19,825

Forwards
 
35,847

 
30,930

Warrants
 
1,538

 
2,222
Schedule of Credit Derivatives
Written credit derivatives held by the Company at March 31, 2020 and December 31, 2019 are summarized below:
Credit Derivatives
 
March 31, 2020
 
December 31, 2019
(In thousands)
 
 
 
 
Fair Value of Written Credit Derivatives, Net
 
$
(1,992
)
 
$
5,414

Fair Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties (1)
 
—

 
(3,248
)
Notional Value of Written Credit Derivatives (2)
 
74,024

 
132,176

Notional Value of Purchased Credit Derivatives Offsetting Written Credit Derivatives with Third Parties (1)
 
—

 
(81,637
)
(1)
Offsetting transactions with third parties include purchased credit derivatives which have the same reference obligation.
(2)
The notional value is the maximum amount that a seller of credit protection would be obligated to pay, and a buyer of credit protection would receive, upon occurrence of a "credit event." Movements in the value of credit default swap transactions may require the Company or the counterparty to post or receive collateral. Amounts due or owed under credit derivative contracts with an International Swaps and Derivatives Association, or "ISDA," counterparty may be offset against amounts due or owed on other credit derivative contracts with the same ISDA counterparty. As a result, the notional value of written credit derivatives involving a particular underlying reference asset or index has been reduced (but not below zero) by the notional value of any contracts where the Company has purchased credit protection on the same reference asset or index with the same ISDA counterparty.