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CLOs and Consolidated Variable Interest Entities | 6 Months Ended
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Jun. 30, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
CLOs and Consolidated Variable Interest Entities | CLOs and Consolidated Variable Interest Entities Telos Asset Management LLC (Telos), a subsidiary of the Company acquired in 2012, is a collateralized loan obligation (“CLO”) manager of five CLOs; namely Telos CLO 2014-5, Ltd. (Telos 5), Telos CLO 2013-4, Ltd. (Telos 4), Telos CLO 2013-3, Ltd. (Telos 3), Telos CLO 2007‑2, Ltd. (Telos 2) and Telos CLO 2006-1, Ltd. (Telos 1). Prior to the acquisition of Tiptree Asset Management Company, LLC (TAMCO), in June 2012, the Company did not consolidate the then existing CLOs (Telos 1 and Telos 2) as it only held a residual interest which was recorded at fair value. The Company met the requirement to consolidate when it acquired the management rights of the CLOs in June 2012. The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated debt obligations to finance the purchase of those investments. The investment activities of a CLO are governed by extensive investment guidelines, generally contained within a CLO’s “indenture” and other governing documents which limit, among other things, the CLO’s exposure to any single industry or obligor and provide that the CLO’s assets satisfy certain ratings requirements. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available. The assets of each of the CLOs are held solely as collateral to satisfy the obligations of the CLOs. The Company does not own and has no right to the benefits from, nor does it bear the risks associated with, the assets held by the CLOs, beyond its direct investments in, and investment advisory fees generated from, the CLOs. If the Company were to liquidate, the assets of the CLOs would not be available to its general creditors, and as a result, the Company does not consider them assets available for the benefit of its investors. Additionally, the investors in the CLOs have no recourse to the Company’s general assets for the debt issued by the CLOs. Therefore, this debt is not the Company’s obligation. For this reason the difference between the fair value of the assets and liabilities at initial consolidation and subsequent results attributable to the Variable Interest Entities (“VIE”) subordinated noteholders is reflected as appropriated retained earnings. The Company’s percentage ownerships of the subordinated notes of the CLOs as of June 30, 2014 are as follows: 7.11% (Telos 1), 95.45% (Telos 2), 0.00% (Telos 3), 71.08% (Telos 4) and 70.51% (Telos 5). As of June 30, 2014 and December 31, 2013, the Company’s maximum exposure to loss related to the CLOs is limited to its investment in the CLOs of $56,976 and $38,459, respectively, as well as the management fees receivable of $3,112 and $3,616 as of June 30, 2014 and December 31, 2013, respectively. Both the carrying values of the Company’s investment in the CLOs and management fees receivable are eliminated upon consolidation. On May 21, 2014, Telos entered into a new $100,000 warehouse agreement with Telos 2014-6, Ltd. (Telos 6). As of June 30, 2014, $118,983 is carried as investments in loans at fair value and $23,400 as debt on the consolidated balance sheet of Tiptree. The Company’s exposure in Telos 6 is limited to its equity investment of $25,000. In July 2014, the Company further contributed $10,000 to the warehouse. In August 2014, the Company contributed an additional $10,000 to the warehouse. The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s consolidated balance sheet as of the dates indicated. Subordinated debt obligations owned by Tiptree are not included in these tables as these amounts are eliminated in consolidation.
| June 30, 2014 |  | December 31, 2013
Assets: |  |  |
Restricted cash | $ | 140,862 |  |  | $ | 67,604 |
Investment in loans | 1,565,916 |  |  | 1,298,155 |
Investment in trading securities | 21,472 |  |  | 19,366 |
Due from brokers | 14,640 |  |  | 15,945 |
Accrued interest receivable | 3,963 |  |  | 4,108 |
Deferred debt issuance costs | 11,844 |  |  | 9,261 |
Other assets | 212 |  |  | 177 |
Total assets of consolidated CLOs | $ | 1,758,909 |  |  | $ | 1,414,616 |
Liabilities: |  |  |
Notes payable | $ | 1,459,153 |  |  | $ | 1,154,097 |
Due to brokers | 53,337 |  |  | 11,479 |
Accrued interest payable | 9,138 |  |  | 9,745 |
Other liabilities | 465 |  |  | 285 |
Total liabilities of consolidated CLOs | $ | 1,522,093 |  |  | $ | 1,175,606 |
The following table represents revenue and expenses of the consolidated CLOs included in the Company’s consolidated statements of operations for the periods indicated:
| Three months ended June 30, |  | Six months ended June 30,
| 2014 |  | 2013 |  | 2014 |  | 2013
Income: |  |  |  |  |  |  |
Realized loss | $ | (5,377 | ) |  | $ | (5,502 | ) |  | $ | (12,332 | ) |  | $ | (6,165 | )
Unrealized gain loans | (1,695 | ) |  | (6,685 | ) |  | (1,477 | ) |  | (3,569 | )
Interest income | 19,921 |  |  | 17,843 |  |  | 38,644 |  |  | 31,953 |
Total income attributable to consolidated CLOs | $ | 12,849 |  |  | $ | 5,656 |  |  | $ | 24,835 |  |  | $ | 22,219 |
Expenses: |  |  |  |  |  |  |
Interest expense | $ | 14,882 |  |  | $ | 11,109 |  |  | $ | 28,344 |  |  | $ | 20,720 |
Other expense | 115 |  |  | 308 |  |  | 645 |  |  | 518 |
Total expenses attributable to consolidated CLOs | $ | 14,997 |  |  | $ | 11,417 |  |  | $ | 28,989 |  |  | $ | 21,238 |
The tables below summarize the debt obligations of the CLOs consolidated by the Company as of June 30, 2014 and December 31, 2013. Subordinated debt obligations owned by Tiptree are not included in these tables as these amounts are eliminated in consolidation:
| June 30, 2014
| Aggregate principal amount |  | Spread over three months LIBOR |  | Unamortized discount |  | Carrying amount
Description |  |  |  |  |  |  |
Telos 5 (maturity April 2025) |  |  |  |  |  |  |
Class A | $ | 252,000 |  |  | 1.55 | % |  | $ | 251 |  |  | $ | 251,749 |
Class B-1 | 39,000 |  |  | N/A |  | (1) | 349 |  |  | 38,651 |
Class B-2 | 7,500 |  |  | 2.15 | % |  | 70 |  |  | 7,430 |
Class C | 32,750 |  |  | 3.00 | % |  | 531 |  |  | 32,219 |
Class D | 19,750 |  |  | 3.65 | % |  | 1,097 |  |  | 18,653 |
Class E | 18,000 |  |  | 5.00 | % |  | 1,691 |  |  | 16,309 |
Class F | 7,750 |  |  | 5.50 | % |  | 1,066 |  |  | 6,684 |
Subordinated | 10,500 |  |  | N/A |  |  | 1,028 |  |  | 9,472 |
Telos 4 (maturity July 2024) |  |  |  |  |  |  |
Class A | $ | 214,000 |  |  | 1.30 | % |  | $ | 918 |  |  | $ | 213,082 |
Class B | 46,500 |  |  | 1.80 | % |  | 1,975 |  |  | 44,525 |
Class C | 29,000 |  |  | 2.75 | % |  | 1,343 |  |  | 27,657 |
Class D | 19,250 |  |  | 3.50 | % |  | 1,501 |  |  | 17,749 |
Class E | 16,000 |  |  | 5.00 | % |  | 1,906 |  |  | 14,094 |
Class X | 2,800 |  |  | 0.95 | % |  | — |  |  | 2,800 |
Subordinated | 10,700 |  |  | N/A |  |  | 493 |  |  | 10,207 |
Telos 3 (maturity October 2024) |  |  |  |  |  |  |
Class A | $ | 225,000 |  |  | 1.42 | % |  | $ | — |  |  | $ | 225,000 |
Class B | 36,500 |  |  | 2.25 | % |  | — |  |  | 36,500 |
Class C | 26,500 |  |  | 3.00 | % |  | 547 |  |  | 25,953 |
Class D | 18,000 |  |  | 4.25 | % |  | 790 |  |  | 17,210 |
Class E | 15,000 |  |  | 5.50 | % |  | 1,460 |  |  | 13,540 |
Class F | 6,000 |  |  | 5.50 | % |  | 718 |  |  | 5,282 |
Subordinated | 34,350 |  |  | N/A |  |  | 1,349 |  |  | 33,001 |
Telos 2 (maturity April 2022) |  |  |  |  |  |  |
Class A-1 | $ | 161,470 |  |  | 0.26 | % |  | $ | 19,377 |  |  | $ | 142,093 |
Class A-2 | 40,000 |  |  | 0.40 | % |  | 8,263 |  |  | 31,737 |
Class B | 27,500 |  |  | 0.55 | % |  | 7,157 |  |  | 20,343 |
Class C | 22,000 |  |  | 0.95 | % |  | 9,069 |  |  | 12,931 |
Class D | 22,000 |  |  | 2.20 | % |  | 11,490 |  |  | 10,510 |
Class E | 16,000 |  |  | 5.00 | % |  | 13,028 |  |  | 2,972 |
Subordinated | 2,000 |  |  | N/A |  |  | 1,614 |  |  | 386 |
Telos 1 (maturity October 2021) |  |  |  |  |  |  |
Class A-1D | $ | 24,666 |  |  | 0.27 | % |  | $ | 2,870 |  |  | $ | 21,796 |
Class A-1R | 9,250 |  |  | 0.29 | % |  | 1,077 |  |  | 8,173 |
Class A-1T | 33,915 |  |  | 0.27 | % |  | 3,946 |  |  | 29,969 |
Class A-2 | 60,000 |  |  | 0.40 | % |  | 12,068 |  |  | 47,932 |
Class B | 27,200 |  |  | 0.49 | % |  | 6,887 |  |  | 20,313 |
Class C | 22,000 |  |  | 0.85 | % |  | 8,831 |  |  | 13,169 |
Class D | 22,000 |  |  | 1.70 | % |  | 11,094 |  |  | 10,906 |
Class E | 16,000 |  |  | 4.25 | % |  | 12,676 |  |  | 3,324 |
Subordinated | 40,223 |  |  | N/A |  |  | 25,391 |  |  | 14,832 |
| $ | 1,633,074 |  |  |  |  | $ | 173,921 |  |  | $ | 1,459,153 |
(1) Tranche B-1 Notes in Telos 5 have a fixed rate of 4.45% over the life of the CLO.
| December 31, 2013
| Aggregate principal amount |  | Spread over three months LIBOR |  | Unamortized discount |  | Carrying amount
Description |  |  |  |  |  |  |
Telos 4 (maturity July 2024) |  |  |  |  |  |  |
Class A | $ | 214,000 |  |  | 1.30 | % |  | $ | 962 |  |  | $ | 213,038 |
Class B | 46,500 |  |  | 1.80 | % |  | 2,066 |  |  | 44,434 |
Class C | 29,000 |  |  | 2.75 | % |  | 1,401 |  |  | 27,599 |
Class D | 19,250 |  |  | 3.50 | % |  | 1,562 |  |  | 17,688 |
Class E | 16,000 |  |  | 5.00 | % |  | 1,976 |  |  | 14,024 |
Class X | 3,500 |  |  | 0.95 | % |  | — |  |  | 3,500 |
Subordinated | 10,700 |  |  | N/A |  |  | 516 |  |  | 10,184 |
Telos 3 (maturity October 2024) |  |  |  |  |  |  |
Class A | $ | 225,000 |  |  | 1.42 | % |  | $ | — |  |  | $ | 225,000 |
Class B | 36,500 |  |  | 2.25 | % |  | — |  |  | 36,500 |
Class C | 26,500 |  |  | 3.00 | % |  | 570 |  |  | 25,930 |
Class D | 18,000 |  |  | 4.25 | % |  | 822 |  |  | 17,178 |
Class E | 15,000 |  |  | 5.50 | % |  | 1,512 |  |  | 13,488 |
Class F | 6,000 |  |  | 5.50 | % |  | 743 |  |  | 5,257 |
Subordinated | 29,000 |  |  | N/A |  |  | 1,322 |  |  | 27,678 |
Telos 2 (maturity April 2022) |  |  |  |  |  |  |
Class A-1 | $ | 221,836 |  |  | 0.26 | % |  | $ | 28,216 |  |  | $ | 193,620 |
Class A-2 | 40,000 |  |  | 0.40 | % |  | 8,717 |  |  | 31,283 |
Class B | 27,500 |  |  | 0.55 | % |  | 7,532 |  |  | 19,968 |
Class C | 22,000 |  |  | 0.95 | % |  | 9,473 |  |  | 12,527 |
Class D | 22,000 |  |  | 2.20 | % |  | 11,900 |  |  | 10,100 |
Class E | 16,000 |  |  | 5.00 | % |  | 13,155 |  |  | 2,845 |
Subordinated | 2,000 |  |  | N/A |  |  | 1,654 |  |  | 346 |
Telos 1 (maturity October 2021) |  |  |  |  |  |  |
Class A-1D | $ | 39,270 |  |  | 0.27 | % |  | $ | 4,867 |  |  | $ | 34,403 |
Class A-1R | 14,726 |  |  | 0.29 | % |  | 1,826 |  |  | 12,900 |
Class A-1T | 53,996 |  |  | 0.27 | % |  | 6,693 |  |  | 47,303 |
Class A-2 | 60,000 |  |  | 0.40 | % |  | 12,781 |  |  | 47,219 |
Class B | 27,200 |  |  | 0.49 | % |  | 7,277 |  |  | 19,923 |
Class C | 22,000 |  |  | 0.85 | % |  | 9,261 |  |  | 12,739 |
Class D | 22,000 |  |  | 1.70 | % |  | 11,548 |  |  | 10,452 |
Class E | 16,000 |  |  | 4.25 | % |  | 12,861 |  |  | 3,139 |
Subordinated | 40,223 |  |  | N/A |  |  | 26,391 |  |  | 13,832 |
| $ | 1,341,701 |  |  |  |  | $ | 187,604 |  |  | $ | 1,154,097 |

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