10-K 1 cifc123114.htm 10-K CIFC 12.31.14
 
UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to             
 
Commission file number: 1-32551
 
CIFC CORP.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
20-2008622
 (I.R.S. Employer Identification No.)
 
 
 
250 Park Avenue, 4th Floor, New York, NY
 (Address of principal executive offices)
 
10177
 (Zip code)
 
Registrant’s telephone number, including area code: 212-624-1200
 
Securities registered pursuant to Section 12(b) of the Act:
Title of Each class:
 
Name of Exchange on Which Registered:
Common Stock, par value $0.001 per share
 
NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K    ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

                           Large accelerated filer o
 
                               Accelerated filer o
 
 
 
                           Non-accelerated filer o
 
                               Smaller reporting company x
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
The aggregate market value of the outstanding common equity held by non-affiliates of the registrant was $54.1 million based on the number of shares held by non-affiliates of the registrant as of June 30, 2014, and based on the reported last sale price of the common stock on June 30, 2014, which is the last business day of the registrant's most recently completed second fiscal quarter.
There were 25,293,959 shares of the registrant’s common stock outstanding as of March 9, 2015.

DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the registrant's proxy statement for the registrant's 2014 Annual Meeting of Stockholders are incorporated by reference in Items 10, 11, 12, 13, and 14 of Part III.

 





CIFC CORP.

2014 ANNUAL REPORT ON FORM 10-K

INDEX

 
 
Page
 
 
 
 




CERTAIN DEFINITIONS
Unless otherwise noted or the context otherwise requires, we refer to CIFC Corp. as "CIFC," to CIFC and its subsidiaries as "we," "us," "our," "our company" or "the Company," to CIFC Asset Management LLC, one of our wholly-owned subsidiaries, as "CIFCAM," to Deerfield Capital Management LLC, one of our indirect wholly-owned subsidiaries, as "DCM," to CypressTree Investment Management, LLC, one of our indirect wholly-owned subsidiaries, as "CypressTree," to Columbus Nova Credit Investments Management, LLC, one of our indirect wholly-owned subsidiaries, as "CNCIM."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this annual report on Form 10-K (the "Annual Report"), and the information incorporated by reference into this Annual Report are forward-looking statements, as permitted by the Private Securities Litigation Reform Act of 1995. These include, but are not limited to, statements regarding future results or expectations. Forward-looking statements can be identified by forward-looking language, including words such as "believes," "anticipates," "expects," "estimates," "intends," "may," "plans," "projects," "will" and similar expressions, or the negative of these words. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made, various operating assumptions and predictions as to future facts and conditions, which may be difficult to accurately make and involve the assessment of events beyond our control. Caution must be exercised in relying on forward-looking statements. Our actual results may differ materially from the forward-looking statements contained in this Annual Report. We believe these factors include but are not limited to those described under the section entitled “Risk Factors” in this report, as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov.

The forward-looking statements contained in this Annual Report are made as of the date hereof, and we do not undertake any obligation to update any forward-looking statement to reflect subsequent events, new information or circumstances arising after the date of this Annual Report. All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referenced above. In addition, it is our policy generally not to make any specific projections as to future earnings, and we do not endorse any projections regarding future performance that may be made by third parties.




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PART I. Financial Information
Item 1. Business
Overview
CIFC Corp. (“CIFC” and, together with its subsidiaries, “we” or "us" ) is a Delaware corporation headquartered in New York City. We are a fundamentals-based, relative value, alternative credit manager. Our primary business is to provide investment management services for investment products. We manage assets for various types of investors, including pension funds, hedge funds, other asset management firms, banks, insurance companies and other types of institutional investors across the world.
Our assets under management (“AUM”) are primarily comprised of Collateralized Loan Obligations ("CLOs"). In addition, we manage credit funds, separately managed accounts ("SMAs"), and other-loan based products (together, with credit funds and SMAs, "Non-CLO products"). We manage these credit products through opportunistic investment strategies where we seek to generate both current income and capital appreciation, primarily through senior secured corporate loans (“SSCLs”) investments and, to a lesser extent, other investments. We also manage Collateralized Debt Obligations (“CDOs”) which we do not expect to issue in the future.

We have three primary sources of revenue: management fees, incentive fees and investment income. Management fees are generally earned based on the amount of assets managed (or AUM), incentive fees are earned based on the performance of the funds and investment income is earned based on the performance of our direct investment in our products.

As of December 31, 2014, DFR Holdings LLC ("DFR Holdings"), on a fully-diluted basis, owned approximately 70% of CIFC's diluted shares outstanding.
The following are significant historical transactions we have entered into:
Prior to 2012, we acquired an investment manager, Columbus Nova Credit Investments Management, LLC (the "CNCIM Acquisition") and completed a merger (the “Merger”) with Commercial Industrial Finance Corp. (“Legacy CIFC”), an asset manager. In acquiring Legacy CIFC, we also acquired CypressTree Investment Management, LLC ("CypressTree"), a credit asset manager that Legacy CIFC acquired in 2010. With the Merger, we have four asset management subsidiaries: CIFC Asset Management LLC ("CIFCAM"), Columbus Nova Credit Investments Management, LLC (“CNCIM”), CypressTree Investment Management, LLC and Deerfield Capital Management LLC ("DCM"). In addition, we exited non-core and other activities, such as the sales of (1) our rights to manage our sole European CLO, Gillespie CLO PLC (“Gillespie”) in January 2012, and (2) our investments in (and our rights to manage) the DFR Middle Market CLO Ltd. (“DFR MM CLO”) in February 2012.
During 2013, DFR Holdings purchased 9,090,909 shares of our outstanding common stock from CIFC Parent Holdings LLC (“CIFC Parent”, which was a significant stockholder prior to this transaction). In addition, DFR Holdings purchased 1,000,000 shares of our outstanding common stock and 2,000,000 warrants from an affiliate of General Electric Capital Corporation (“GE Capital”), which represented GE Capital's entire shareholding in CIFC. During 2014, DFR Holdings exercised its right to convert the $25.0 million aggregate principal amount of Convertible Notes into 4,132,231 shares of Common Stock (see Item 8. Financial Statements and Supplementary Data - Note 11, 12 and 16). Following these transactions, as of December 31, 2014, DFR Holdings, on a fully-diluted basis, owned approximately 70% of our shares.
Core Asset Management Activities

We establish and manage investment products for various types of investors, including pension funds, hedge funds, other asset management firms, banks, insurance companies and other types of institutional investors located around the world. Management fees from our investment products are as follows:

CLOs - For additional information on the structure of a CLO see below—Collateralized Loan Obligations for further details. The management fees paid to us by these investment products are our primary source of revenue and are generally paid on a quarterly basis for as long as we manage the products. Management fees on CLOs typically consist of senior and subordinated management fees based on the amount of assets held in the investment product and, in certain cases, include incentive fees based on the returns generated for certain investors.
 
Management fees differ from product to product, but in general, for CLOs, the primary investment product we manage, consist of the following (before fee sharing arrangements, if any):
 

4


Senior management fees (payable before the interest payable on the debt securities issued by such CLOs) that generally range from 15 to 20 basis points annually on the principal balance of the underlying collateral of such CLOs.

Subordinated management fees (payable after the interest payable on the debt securities issued by such CLOs and certain other expenses) that generally range from 30 to 35 basis points annually on the principal balance of the underlying collateral of such CLOs.

Incentive fees vary based on the terms of each CLO. Certain CLOs do not pay incentive fees at all or have only an incentive fee that is paid to the manager thereof after certain investors’ returns exceed an internal rate of return hurdle. Upon achievement of this hurdle, the manager is paid a percentage (generally 20%) of residual cash flows in excess of this hurdle.

Non-CLO products - We also earn management fees and incentive allocation on our credit funds which differ from product to product.
 
CDOs - Management fees on the CDOs we manage also differ from product to product, but in general they consist of a senior management fee (payable before the interest payable on the debt securities issued by such CDOs) that ranges from 5 to 25 basis points annually of the principal balance of the underlying collateral of such CDOs and a subordinated management fee (payable after the interest payable on the debt securities issued by such CDOs and certain other expenses) that ranges from 5 to 35 basis points annually of the principal balance of the underlying collateral of such CDOs. Only a limited number of the CDOs we manage paid subordinated management fees. We do not expect to issue CDOs in the future.

Collateralized Loan Obligations

The term CLO (which for purposes of this section also includes the term CDO unless otherwise noted) generally refers to a special purpose vehicle that owns a portfolio of investments (SSCLs in the case of CLOs and typically asset-backed or other securities in the case of CDOs) and issues various tranches of debt and subordinated note securities 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 maximum exposure to any single industry or obligor and limit the ratings of the CLO’s assets. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available. As each CLO's investments are pledged to the holder of the debt securities (further described below) in such CLO, the investments are also sometimes referred to herein as "collateral."
 
CLOs typically issue multiple tranches of debt and subordinated note securities with varying ratings and levels of subordination to finance the purchase of investments. These securities receive interest and principal payments from the CLO in accordance with an agreed upon priority of payments, commonly referred to as a “waterfall.” While the CLOs themselves, not us, issue these securities, in accordance with standard practice in our industry we sometimes refer to "CIFC" or "we" as issuing CLOs and/or CLO securities. The most senior notes, generally rated AAA/Aaa, commonly represent the majority of the total liabilities of the CLO. This tranche of notes is generally issued at a specified spread over LIBOR and normally has the first claim on the earnings on the CLO’s investments after payment of certain "senior" fees and expenses. The mezzanine tranches of rated notes generally have ratings ranging from AA/Aa to BB/Ba and also are usually issued at a specified spread over LIBOR with higher spreads paid on the tranches with lower ratings. Each tranche is typically only entitled to a share of the earnings on the CLO’s investments if the required interest and principal payments have been made on the more senior tranches. The most junior tranche can take the form of either subordinated notes or preference shares and is commonly referred to as the CLO’s “subordinated notes”, "equity" or "residual interests." The subordinated notes generally do not have a stated coupon but are entitled to residual cash flows from the CLOs’ investments after all of the other tranches of notes and certain other fees and expenses are paid. While the majority of the subordinated notes of the CLOs we manage are owned by third parties, we do own a portion of the subordinated note tranches of certain of the CLOs we manage. Our investments and beneficial interests in the Consolidated CLOs we manage was $25.5 million and $49.5 million as of December 31, 2014 and 2013, respectively. See Item 8—"Financial Statements and Supplementary Data—Note 4" for additional details on CLOs and other Consolidated Variable Interest Entities ("VIEs" or "VIE").
 
CLOs, which are designed to serve as investments for third party investors, generally have an investment manager to select and actively manage the underlying assets to achieve target investment performance. In exchange for these services, CLO managers typically receive three types of management fees: senior management fees, subordinated management fees and incentive fees (described above). CLOs also generally appoint a custodian, trustee and collateral administrator, who are responsible for holding the CLOs' investments, collecting investment income and distributing that income in accordance with the respective CLO's waterfall.



5


Fee Earning Assets Under Management

Fee Earning Assets Under Management ("Fee Earning AUM" or "AUM") refers to the assets managed by us on which we are paid management fees and/or incentive fees. Generally, with respect to CLOs, management fees are paid to CIFC based on the aggregate collateral balance at par plus principal cash, and with respect to Non-CLO funds, the value of the assets in such funds (excluding non-fee earning AUM such as our investments).
The following table summarizes the Fee Earning AUM by significant investment product category (1)(2): 
 
December 31, 2014
 
December 31, 2013
 
Number of Accounts
 
Fee Earning AUM
 
Number of Accounts
 
Fee Earning AUM
 
 
 
(In thousands)
 
 
 
(In thousands)
Post 2011 CLOs
13

 
$
7,402,986

 
8

 
$
4,127,951

Legacy CLOs (3)
19

 
4,960,877

 
20

 
6,811,382

     Total CLOs
32

 
12,363,863

 
28

 
10,939,333

Credit Funds & SMAs (4)
8

 
593,456

 
5

 
406,857

Other Loan-Based Products (4)
2

 
719,170

 
1

 
699,669

Total Non-CLOs (4)
10

 
1,312,626

 
6

 
1,106,526

Total Loan-Based AUM
42

 
13,676,489

 
34

 
12,045,859

ABS and Corporate Bond CDOs
8

 
687,555

 
8

 
802,821

Total Fee Earning AUM
50

 
$
14,364,044

 
42

 
$
12,848,680


Explanatory Notes:
_________________________________
(1)
We do not expect to issue new CDOs in the future. Fee Earning AUM on CDOs is expected to continue to decline as these funds run-off per their contractual terms.
(2)
Fee Earning AUM is based on latest available monthly report issued by the trustee or fund administrator prior to the end of the period, and may not tie back to Consolidated GAAP financial statements.
(3)
Legacy CLOs represent all managed CLOs issued prior to 2011, including CLOs acquired since 2011 but issued prior to 2011.
(4)
Management fees for Non-CLO products vary by fund and may not be similar to a CLO.


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Fee Earning AUM activity is as follows:
 
December 31, 2014
 
December 31, 2013
 
(in thousands)
Total loan-based AUM - Beginning Balance
$
12,045,859

 
$
11,844,898

CLO New Issuances
3,249,990

 
2,530,869

CLO Principal Paydown
(1,761,162
)
 
(2,013,497
)
CLO Calls, Redemptions and Sales
(86,693
)
 
(681,167
)
Fund Subscriptions
206,918

 
494,161

Fund Redemptions
(26,625
)
 
(10,354
)
Other (1)
48,202

 
(119,051
)
Total loan-based AUM - Ending Balance
13,676,489

 
12,045,859

Total CDOs - Ending Balance
687,555

 
802,821

Total Fee Earning AUM - Ending Balance
$
14,364,044

 
$
12,848,680


Explanatory Note:
_________________________________
(1)     Other includes changes in collateral balances of CLOs between periods and market value changes in certain Non-CLO products.

Investment Approach

Our investment processes are overseen by our Investment Research, Portfolio Management and Trading teams. Under our analytical framework, each new investment opportunity is first screened and, if it passes initial review, subsequently voted on by the firm's Investment Committee. Our investment team includes over 25 professionals with an average 14 years of credit experience. CIFC's investment team is led by its Co-President, Steve Vaccaro, who has 36 years of relevant credit experience and has been with CIFC since inception. CIFC’s top three senior credit analysts average 18 years of relevant experience. The Head of Investment Research and Head of Special Situations average 25 years of credit experience. When evaluating the suitability of an investment and subject to an account's individual investment objectives and parameters, we typically:

employ underwriting discipline based on (i) fundamental credit analysis, which assesses each borrower's debt servicing capability, (ii) fundamental value, (iii) the magnitude and prospective volatility of the “value cushion” (a CIFC term for junior capital supporting each investment) and (iv) identifying and selecting investment candidates whose value cushion is robust and durable;

utilize internally-developed risk ratings based on individual obligor assessment, without undue reliance on credit rating agencies;

diversify investment portfolios by avoiding concentration imbalances, on-going active portfolio management and utilization of proprietary tools; and

continuously re-assess and adjust portfolios by identifying relative value differentials, market inefficiencies and technical imbalances.

When any weakness is identified with the credits, we evaluate whether to sell or hold such loans to maximize our recovery. Our portfolio management and trading team works closely with our credit research team from the date an investment is made until the time it is exited in order to ensure that performance of each investment is closely monitored and our clients' investment objectives are met.

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Competition
We compete for asset management clients and AUM with numerous other asset managers, including those affiliated with major commercial banks, broker-dealers, other financial institutions and larger, diversified alternate asset managers. The factors considered by clients in choosing us or a competitor include the past performance of the products we manage, historical lower default rate than the industry, the background and experience of our key portfolio management personnel, our experience in managing a particular product type, our reputation in the fixed income asset management industry, our management fees and the structural features of the investment products that we offer. Some of our competitors have greater portfolio management resources than us, have managed client accounts for longer periods of time, have experience over a wider range of products than us or have other competitive advantages over us.
Operating and Regulatory Structure
Exclusion from Regulation under the 1940 Act—We have operated, and intend to continue to operate, in such a way as to be excluded from registration under the Investment Company Act of 1940, as amended (the "1940 Act"). We and our wholly-owned subsidiaries are primarily excluded from registration under the 1940 Act because we are not engaged, and do not propose to engage, in the business of investing, reinvesting, owning, holding or trading in securities and do not own or propose to acquire "investment securities" having an aggregate value exceeding 40% of our total assets, on an unconsolidated basis, excluding cash and government securities (the "40% Test"). "Investment securities" excludes, among other things, majority-owned subsidiaries that rely on the 40% Test. Certain of our subsidiaries rely on the 40% Test or on an exemption under Section 3(c)(7), which is for entities owned by "qualified purchasers" under the 1940 Act.
Governmental Regulations—Each of CIFCAM, DCM, CypressTree and CNCIM (collectively, referred to herein as the "Advisers") are registered, either directly or as a relying adviser, with the U.S. Securities and Exchange Commission's (the "SEC") as an investment adviser. In these capacities, the Advisers are subject to various regulatory requirements and restrictions with respect to our asset management activities, periodic regulatory examinations and other laws and regulations. In addition, investment vehicles managed by the Advisers are subject to various securities and other laws. Parts 1 and 2 of the Advisers Form ADV is publicly available on the SEC Investment Advisers Public Disclosure website (www.adviserinfo.sec.gov) or upon request to us using the contact information below.
Employees
As of December 31, 2014, we had 75 full-time employees.
Available Information
Our principal executive offices are located at 250 Park Avenue, New York, New York 10177.

CIFC files annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended , with the SEC. Readers may read and copy any document that CIFC files at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public from the SEC’s internet site at http://www.sec.gov.

Our website is www.cifc.com. We make available free of charge, on or through the "Our Shareholders/SEC Filings" section of our website, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such materials with, or furnish to, the SEC. Also posted on our website, and available in print upon request to our Compliance Department, are the charters for our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and our Code of Ethics, which governs our directors, officers and employees. Within the time period required by the SEC and the NASDAQ Stock Market LLC ("NASDAQ"), we will post on our website any amendment to our Code of Ethics and any waiver applicable to our senior financial officers, and our executive officers or directors. In addition, information concerning purchases and sales of our equity securities by our directors and Section 16 reporting officers is posted on our website. Information on our website is not part of this Annual Report and is not deemed incorporated by reference into this Annual Report or any other public filing made with the SEC.



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Item 1A.    Risk Factors
        Our business, financial condition, operating results and cash flows may be impacted by a number of factors. The following sets forth the most significant factors that make an investment in our company speculative or risky. In addition to the following risk factors, please also refer to the section entitled "Special Note Regarding Forward-Looking Statements."
Risks Related to Our Business
Our business and financial performance may be adversely affected by market, economic and other industry conditions.
Our business and financial performance may be adversely affected by market, economic and other industry conditions. While adverse effects of the recent financial crisis have abated to a significant degree, global financial markets have experienced heightened volatility in recent years. Although default rates are inside of historical average, changes to geopolitical situations and in fiscal or monetary policies could have unpredictable consequences for credit markets and negatively impact our business. 
Periods of difficult market conditions or slowdowns (which may be across one or more industries, sectors or geographies), would increase the risk of default. Difficult economic conditions could also adversely affect our operating results by causing (i)decreases in the market value of investments held by our funds (ii) reduction in transaction volumes (iii) redemptions in our open ended credit funds and SMAs and (iv) reduction in our assets under management, lowering management fees payable by our funds. 
Changes in CLO spreads and an adverse market environment could continue to make it difficult for the Advisers and other investment managers to launch new CLOs.
        The ability to issue new CLOs is dependent, in part, on the amount by which the interest earned on the investments held by the CLO exceeds the interest payable by the CLO on the debt obligations it issues to investors and the CLO's other expenses, as well as other factors. If this excess (also known as a CLO's “arbitrage”) is not sufficient, the proposed CLO will not be attractive to investors and thus cannot be issued. There may be sustained periods when CLO arbitrage will not be sufficient for the Advisers to issue new CLOs, which could materially impair the Advisers' business. During the most recent financial crisis, there was a dislocation in the credit market that significantly impeded CLO formation. Although market conditions have improved, the dislocation in credit markets could return and continue for a significant period of time. Renewed dislocation of these markets could adversely impact our results of operations and financial condition.
We operate in highly competitive markets, compete with larger institutions and we may not be able to grow our assets under management ("AUM").
        The alternative asset management industry is intensely competitive and subject to rapid change. Many firms offer similar and additional asset management products and services to the same types of clients that we target. We currently focus almost exclusively on managing SSCLs and related financial instruments, which is in contrast to numerous other asset managers with comparable AUM, which have significant background and experience in both the equity and debt markets. In addition, many of our competitors have or may in the future develop greater financial and other resources, more extensive distribution capabilities, more effective marketing strategies, more attractive investment vehicle structures and broader name recognition. Many of our competitors are substantially larger than us, have considerably more financial and other resources and may have investment objectives that overlap with ours, which may create competition for investment opportunities with limited supply. Some competitors may have a lower cost of funds and access to funding sources that are not available to us, and may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. The competitive pressures we face could adversely affect our business, financial condition and results of operations. Additionally, if other asset managers offer services and products at more competitive prices than us, we may not be able to maintain our current fee structure. Investment strategies and products, including CLOs, that had historically been attractive to investors may lose their appeal for various reasons. In such case, we would have to develop new strategies and products in order to remain competitive. It could be both expensive and difficult for us to develop new strategies and products, and we may not be successful in this regard. Finally, poor performance of our funds could also make it more difficult for us to raise new AUM. These competitive and other pressures could adversely affect our business, financial condition and results of operations.
      Currently, the substantial majority of our investment products are CLOs that cannot be redeemed or terminated by investors unless certain conditions are met or they are not yet redeemable or terminable by investors at all. However, with the passage of time or upon the satisfaction of such conditions, these investment products will be redeemed, and we will no longer receive management fees related to these products. In addition, the prepayment of the assets contained in the CLOs we manage and our inability to reinvest the proceeds of such prepayments in accordance with the investment guidelines of the CLOs will reduce the asset base on which our fees are paid and thus the amount of our management fees. If we are unable to launch new products and grow AUM to sufficiently replace lost AUM, our revenues will decline.

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A reduction in the amount or value of assets in the investment products we manage could significantly reduce our management fees and incentive fees and adversely affect our financial performance.
        Our success depends on our ability to earn management fees from the investment products we manage for third party investors. Such fees generally consist of payments based on the amount of assets in the investment product (known as management fees and/or advisory fees) and, in certain cases, on the returns generated for certain investors in the investment product (incentive fees). If there is a reduction in a product's assets, there will be a corresponding reduction in our management fees from the account and a likely reduction in our incentive fees, if any, relating to the product, since the smaller the product's asset base, the smaller the potential profits earned by the product. There could be a reduction in a product's assets resulting from the prepayment of the assets in the product if we are unable to reinvest the prepayment proceeds, due to a forced liquidation of the assets in the product or due to poor investment performance, including downgrades of ratings assigned to the assets and/or portfolios the Advisers manage. As a result, a reduction in the value of assets in the investment products we manage and management fees, and the failure of the Advisers' investment products to perform well both on an absolute basis and in relation to competing products, may adversely affect our business and financial performance.
Our existing recourse indebtedness and the inability to access capital markets could restrict our business activities or adversely affect our financial performance.
        As of December 31, 2014 and 2013, we had approximately $120.0 million and $145.0 million, respectively, of outstanding recourse indebtedness. On July 12, 2014, we converted our $25.0 million full par value of Convertible Notes into 4,132,231 shares of our common stock. $25.0 million of our Junior Subordinated Notes currently bear interest at a variable interest rate and $95.0 million will begin to bear interest at a variable interest rate after April 30, 2015, which may subject us to interest rate risk and increase our debt service obligations if such interest rate increases. In addition, the debt instruments governing our indebtedness contain covenants that may restrict our business activities, and our failure to comply with these covenants could result in a default under our indebtedness. Furthermore, we are permitted by the terms of our Junior Subordinated Notes and our other debt instruments to incur additional indebtedness, however, the proceeds of such indebtedness are subject to the limits on restricted payments of the Junior Subordinated Notes. Our inability to generate sufficient cash flow to satisfy our debt obligations, to refinance our debt obligations or to access capital markets or otherwise obtain additional financing on commercially reasonable terms could adversely affect our financial condition, operating results and cash flows. Additionally, our return on investments and available cash flow may be reduced to the extent that changes in market conditions increase the cost of our financing relative to the income that can be derived from the assets acquired.
Our business could be impaired if we are unable to attract and retain qualified personnel.
        We depend on the diligence, experience, skill and network of business contacts of our executive officers and employees for the evaluation, negotiation, structuring and monitoring of our investments and the operation of our business. Additionally, certain of our investment management contracts may be tied to the retention of certain key employees. The management of our investment products is undertaken by our Investment Research, Portfolio Management and Trading teams, consisting of various investment research and portfolio management and trading personnel, none of whom are bound by employment agreements. The loss of a particular member or members of such teams could cause investors in the product to withdraw all or a portion of their investment in the product, and adversely affect the marketing of the product to new investors and the product's performance. In the case of certain CLOs, we can be removed as investment adviser upon the loss of specified key employees. In addition to the loss of specific investment research and portfolio management and trading team members, the loss of one or more members of our senior management involved in supervising the teams and operating our business could have similar adverse effects on our investment products or our business. We have experienced turnover in certain members of our senior management over the past 18 months. If turnover continues, our business and financial performance could be adversely affected.
Accordingly, the inability to attract and retain qualified personnel could affect our ability to provide an acceptable level of service to our clients and take advantage of new opportunities, which could adversely affect our business and financial performance.
We may leverage our assets and a decline in the fair value of such assets may adversely affect our financial performance.
        We may leverage our assets through borrowings, generally through warehouse facilities, secured loans, derivative instruments such as total return swaps, securitizations (including the issuance of CLOs), private funds and other borrowings. Certain leverage we may employ may have market value based lending triggers, such that lenders may require us to post additional collateral to support the borrowing if asset prices decline. If we cannot post the additional collateral, we may have to rapidly liquidate assets, which we may be unable to do on favorable terms or at all. Even after liquidating assets, we may still be unable to post the required collateral, further harming our liquidity and subjecting us to liability to our lenders for the declines in the fair values of the collateral. A reduction in credit availability may reduce our earnings, liquidity and available cash.

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We expect to enter into warehouse agreements in connection with our potential investment in and management of CLOs and other investment products, which may expose us to substantial risks.
        In connection with our potential investment in and management of new CLOs and other investment products, we expect to enter into warehouse agreements with warehouse providers such as banks or other financial institutions, pursuant to which the warehouse provider will finance the purchase of investments that will be ultimately included in a CLO or other investment product. For CLOs these investments are primarily comprised of SSCLs rated below investment grade. Securities rated below investment grade are often referred to as “leveraged loans” or “high yield” securities, and may be considered “high risk” compared to debt instruments that are rated investment grade. We will typically select the investments in the warehouse subject to the approval of the warehouse provider. If the relevant CLO transaction or other investment product is not issued or consummated, as applicable, the warehouse investments may be liquidated, and we may be required to pay any amount by which the purchase price of the investments exceeds its sale price and may be liable for certain of the expenses associated with the warehouse or planned CLO or other investment product. In addition, regardless of whether the CLO or other investment product is issued or consummated, if any of the warehoused investments are sold before such issuance or consummation, we may have to bear any resulting loss on the sale. The amount at risk in connection with a warehouse agreement will vary and may not be limited to the amount, if any, that we invest in the related CLO or other investment product upon its issuance or consummation, as applicable. Although we would expect to complete the issuance of a particular CLO or other investment product within six to nine months after establishing a related warehouse, we may not be able to complete the issuance within such expected time period or at all.
Our quarterly results could fluctuate and may not be indicative of our future quarterly performance.
        Our quarterly operating results could fluctuate; therefore investors should not rely on past quarterly results to be indicative of our performance in future quarters. Factors that could cause our quarterly operating results to fluctuate include, among other things, variations in quarterly fair value determinations of our assets and liabilities, impairments on our intangible assets (including goodwill), changes in interest rates affecting our interest income and interest expense, distributions from our investments in CLOs and private funds and our provision for income tax.
Because the values we record for certain investments and liabilities are based on estimates of fair value made by management, we are exposed to substantial risks.
        Some of our investments and liabilities are not publicly traded. The fair value of such investments and liabilities are not readily determinable. Each of these carrying values is based on an estimate of fair value. Management reports estimated fair value of these investments and liabilities quarterly, which may cause our quarterly operating results to fluctuate. Therefore, our past quarterly results may not be indicative of our performance in future quarters. In addition, because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values that would have been used if a ready market for these investments and liabilities existed and we may be unable to realize the carrying value upon a sale of these investments.
We may in the future issue shares of additional capital stock to raise proceeds for a wide variety of purposes, which could dilute and therefore reduce the value of our existing outstanding capital stock.
        We may seek to issue shares of our capital stock, either in public offerings, private transactions or both, to raise additional capital or enter into strategic transactions. Such issuances could substantially dilute the stock of our existing stockholders without a corresponding increase in value. We may raise capital for a wide variety of purposes, such as implementing our business plan and repaying indebtedness. Our management will have broad discretion over how we use the proceeds of any capital raise. We may not be able to raise capital at the time or times that we wish, in the amounts we wish, or on the terms or at the prices we consider favorable to us and our stockholders. We may use the proceeds of any future offering in ways in which holders of our capital stock disagree and that yield less than our expected return, or no return at all, which could result in substantial losses to us.
Loss of our 1940 Act exemption could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our business and the price of our shares.
       We rely primarily on section 3(a)(1)(C) for our exclusion from the registration requirements of the 1940 Act. This provision requires that we neither engage nor propose to engage in the business of investing, reinvesting, owning, holding or trading in securities nor own or propose to acquire "investment securities" having a value exceeding 40% of the value of our total assets on an unconsolidated basis, which is referred to herein as the “40% Test”. "Investment securities" excludes U.S. government securities and securities of majority-owned subsidiaries that rely on the 40% Test. If we fail to meet our current exemption and another exemption is not available, we may be required to register as an investment company. If we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and would have a material adverse effect on our business.

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The accounting rules applicable to certain of our transactions are highly complex and require the application of significant judgment and assumptions by our management. In addition, changes in accounting interpretations or assumptions could impact our financial statements.
Accounting rules for consolidations, income taxes, business acquisitions, transfers of financial assets, securitization transactions and other aspects of our operations are highly complex and require the application of judgment and assumptions by management. The consolidation of Variable Interest Entities ("VIEs") is subject to periodic reassessment which could lead to the deconsolidation of previously consolidated entities or the consolidation of entities that were previously not required to be consolidated. Deferred tax assets are subject to the establishment of a valuation allowance in the event management concludes that the tax benefits of certain timing differences may not be realized. Business acquisitions require the valuation of assets acquired and liabilities assumed. Assets acquired include intangible assets, including goodwill, that will be subject to periodic testing and evaluation for impairment. These complexities could lead to a delay in the preparation of our financial information. In addition, changes in accounting rules, interpretations or assumptions could materially impact the presentation, disclosure and usability of our financial statements.
Failure to develop effective business continuity plans could disrupt our operations and cause financial losses.
        We operate in an industry that is highly dependent on information systems and technology. We face various security threats, including cyber security attacks to our information technology infrastructure that are intended to gain access to our proprietary information, destroy data or disable, degrade or sabotage our systems. These security threats could originate from a wide variety of sources, including unknown third parties outside CIFC. Although we have not yet been subject to cyber-attacks or other cyber incidents which, individually or in the aggregate, have materially affected our operations or financial condition, there can be no assurance that the various procedures and controls we utilize to mitigate these threats will be sufficient to prevent disruptions to our systems. If any of these systems do not operate properly or are disabled for an extended period of time or if there is any unauthorized disclosure of data, whether as a result of tampering, a breach of our network security systems, a cyber-incident or attack or otherwise, we could suffer substantial financial loss, increased costs, a disruption of our businesses, liability to our investors, regulatory intervention or reputational damage. In addition, our information systems and technology may not continue to be able to accommodate our growth, and the cost of maintaining such systems may increase from its current level. Such a failure to accommodate growth or an increase in costs related to such information systems, could have a material adverse effect on us.
We depend to a substantial degree on the availability of our office facilities and the proper functioning of our computer and telecommunications systems. Although we have established a significant disaster recovery program, including pursuant to which (i) we have a dedicated offsite location for certain key staff and (ii) data is backed up at a secured off-site location and is accessible remotely, a disaster, such as water damage to our office, an explosion or a prolonged loss of electrical power, could materially interrupt our business operations and cause material financial loss, regulatory actions, reputational harm or legal liability, which, in turn, could depress our stock price. Additionally, we cannot assure holders of our stock that the cost of maintaining those services and technology will not materially increase from its current level. Such an increase in costs related to these information systems could have a material and adverse effect on us.
DFR Holdings, LLC exercises significant influence over us, including through the ability to elect six members of our Board of Directors.
        As of December 31, 2014, our common stock owned by DFR Holdings, LLC represents over 70% of shares in CIFC on a fully diluted basis. The Third Amended and Restated Stockholders Agreement provides that DFR Holdings has the right to designate six directors to the Board. As a result, the directors elected to the Board by DFR Holdings exercise significant influence on matters considered by the Board. DFR Holdings may have interests that diverge from, or even conflict with, our interests and those of our other stockholders.
        Other than requirements to support the nomination, election and removal of directors in accordance with the Third Amended and Restated Stockholders Agreement and to support maintaining our status as a "controlled company" under applicable NASDAQ rules, there are no restrictions on DFR Holdings' ability to vote the common stock owned by them unless there is a conflict of interest. As a result, DFR Holdings, acting alone, would control the outcome of any matter submitted for the vote of our stockholders, including the amendment of our organizational documents, acquisitions or other business combinations involving us and potentially the ability to prevent extraordinary transactions such as a takeover attempt.
        The concentration of ownership may have the effect of delaying, preventing or deterring a change of control of us, may deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our business and may have a material adverse effect on the market price of our common stock.

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We have goodwill and other intangible assets that may become impaired and have a material adverse effect on our financial condition and results of operations.
       We have goodwill and intangible assets that are tested for impairment on an annual basis, or when facts and circumstances indicate that impairment may have occurred. If these tests indicate that an asset has been impaired, we will recognize a charge to results of operations, which may have a material adverse effect on our financial condition and results of operations.
We are subject to substantial risk from litigation and potential securities laws liability and may face significant damage to our professional reputation as a result of such allegations and negative publicity associated therewith.
        Many aspects of our business involve substantial risks of litigation and/or arbitration, and from time to time, we are involved in various legal proceedings in the course of operating our business. From time to time we, our funds and our portfolio companies have been and may be subject to class action suits by shareholders in public companies that we have agreed to acquire that challenge our acquisition transactions and/or attempt to enjoin them. In addition, we may be exposed to liability under federal and state securities laws, other federal and state laws and court decisions, as well as rules and regulations promulgated by the SEC and other regulatory bodies. An adverse resolution of any lawsuit, legal or regulatory proceeding or claim against us could result in substantial costs or reputational harm to us, and have a material adverse effect on our financial performance. In addition to these financial costs and risks, the defense of litigation or arbitration may divert resources and management's attention from operations. Asset managers such as the Advisers also are particularly vulnerable to losing clients because of adverse publicity. Accordingly, allegations or an adverse resolution of any lawsuit, legal or regulatory proceeding or claim against us, could materially harm our financial performance.
Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus could result in additional burdens on our business. Legislative or regulatory changes could adversely affect us.
        The Advisers are heavily regulated as investment advisers, primarily at the federal level. Many of these regulators, including the SEC, as well as state securities commissions, are empowered to conduct examinations, investigations and administrative proceedings that can result in fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or investment adviser from registration or memberships. Even if an investigation or proceeding did not result in a sanction or the sanction imposed against us or our personnel by a regulator were small in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm our reputation and cause us to lose existing clients or fail to gain new asset management or financial advisory clients.
        Non-compliance with applicable laws or regulations could result in sanctions being levied against us, including fines and censures, suspension or expulsion from a certain jurisdiction or market, or the revocation of licenses. Non-compliance with applicable laws or regulations could also adversely affect our reputation, prospects, revenues and earnings.
        In addition, changes in current legal, regulatory, accounting, tax or compliance requirements or in governmental policies could adversely affect our operations, revenues and earnings by, among other things, increasing expenses and reducing investor interest in certain products we offer. Additionally, our profitability could be affected by rules and regulations that impact the business and financial communities generally, including changes to the laws governing state and federal taxation.    
In July 2010, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), in part to impose significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial markets. For instance, the Dodd-Frank Act imposes significant restrictions on the proprietary trading activities pursuant to the “Volker Rule” and other rules and regulations of certain banking entities and subjects other systemically significant organizations regulated by the U.S. Federal Reserve to increased capital requirements and quantitative limits for engaging in such activities. These rules could adversely affect the availability of warehouse financing, the attractiveness of investments in funds we manage and/or the loan market generally. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the CLO market) by requiring the retention by the relevant fund sponsor of not less than 5% of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. In December 2014, the final risk retention rules (the “Risk Retention Rules”) were published and go effective in December 2016. While the full impact of the Dodd-Frank Act cannot be assessed until implementing regulations are released, the new mandatory risk retention requirement as applied to CLOs may result in us having to invest money in CLOs that we manage before or after the effective date of the Risk Retention Rules (including, potentially, in existing CLOs that are refinanced or as to which certain other material events occur after such effective date) that would otherwise be available for other uses.  While the impact of the Risk Retention Rules on us, the loan securitization market and the leveraged loan market generally are uncertain, the Risk Retention Rules may have an adverse effect on our business.

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    Under the U.S. Foreign Account Tax Compliance Act (“FATCA”), all entities in a broadly defined class of foreign financial institutions (“FFIs”), likely impacting CLOs, are required to comply with a complicated and expansive reporting regime or, beginning in 2014, be subject to a 30% United States withholding tax on certain U.S. payments (and beginning in 2017, a 30% withholding tax on gross proceeds from the sale of U.S. stocks and securities) and non-U.S. entities which are not FFIs are required to either certify they have no substantial U.S. beneficial ownership or to report certain information with respect to their substantial U.S. beneficial ownership or, beginning in 2014, be subject to a 30% U.S. withholding tax on certain U.S. payments (and beginning in 2017, a 30% withholding tax on gross proceeds from the sale of U.S. stocks and securities). The reporting obligations imposed under FATCA require FFIs to enter into agreements with the IRS to obtain and disclose information about certain investors to the IRS. In addition, the administrative and economic costs of compliance with FATCA may discourage some foreign investors from investing in CLOs or other funds, which could adversely affect our ability to raise funds from these investors.
        In addition, we regularly rely on exemptions from various requirements of the U.S. Securities Act of 1933, as amended, the Exchange Act, the 1940 Act, and the U.S. Employee Retirement Income Security Act of 1974, as amended, in conducting our asset management activities. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third party claims and our business could be materially and adversely affected.
        Lastly, the requirements imposed by our regulators are designed primarily to ensure the integrity of the financial markets and to protect investors in our investment products and are not designed to protect our common stockholders. Consequently, these regulations often serve to limit our activities and impose burdensome compliance requirements.
We do not know the impact on our business caused by actions by U.S. and foreign governments, central banks and other governmental and regulatory bodies attempting to stabilize and strengthen the financial market or their increased focus on the regulation of our industry.
        In recent years, U.S. and foreign governments, central banks and other governmental and regulatory bodies have taken a number of steps to attempt to stabilize and strengthen the U.S. and global financial markets and economies. In particular, in the U.S., these efforts have included direct government investments in, and guarantees of, troubled financial institutions as well as government-sponsored programs such as the Troubled Asset Relief Program in 2008 and the Emergency Economic Stabilization Act of 2008. In addition, the Dodd-Frank Act imposes new regulations and significant investment restrictions and capital requirements on banking entities and other organizations that are significant to the U.S. financial markets and could increase our costs of operating as a public company. Furthermore, many key aspects of the Dodd-Frank Act will be established by various regulatory bodies and other groups over the next several years. We are not able to predict the impact on our business, results of operations and financial condition of these efforts by U.S. and foreign governments, central banks or other governmental and regulatory bodies or the impact of future regulation of our industry.
Foreign corporate entities in which we have invested could be subject to federal income tax at the entity level, which would greatly reduce the amounts those entities would have available to distribute to us.
        From time to time, we invest in investment products managed by the Advisers. Those investments typically are in the form of interests in foreign corporate entities. There is a specific exemption from federal income tax for non-U.S. corporations that restrict their activities in the United States to trading stock and securities (or any activity closely related thereto) for their own account whether such trading (or such other activity) is conducted by the corporation or its employees through a resident broker, commission agent, custodian or other agent. We intend that our foreign corporate investments will rely on that exemption or otherwise operate in a manner so that they will not be subject to federal income tax on their net income at the entity level. If the IRS successfully challenged the qualification of our foreign corporate investment for the exemption from federal income tax described above, that could greatly reduce the amount that our foreign corporate entities would have available to pay to their creditors and to distribute to us.
The Advisers' incentive fees may increase the volatility of our cash flows, which could adversely affect our financial performance.
        Historically, a portion of the Advisers' revenues have been derived from incentive fees on the various investment products that they manage. Incentive fees are generally based on the returns generated for certain investors in the investment product. With respect to the Advisers' CLOs, the Advisers are entitled to incentive fees only if the returns on the related portfolios exceed agreed-upon return targets. Incentive fees, if any, may vary from period to period in relation to volatility in investment returns, causing the Advisers' cash flows to be more volatile than if it did not manage assets on an incentive fee basis. Adverse credit and capital markets conditions could significantly increase the volatility of the investment products managed by the Advisers and decrease the likelihood that they will earn incentive fees. Also, alternative asset managers typically derive a greater portion of their revenues from incentive fees than traditional asset managers, thus increasing the potential volatility in the Advisers' cash flows. The volatility in the Advisers' cash flows and decreases in incentive fees could harm our financial performance.

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We derive much of our revenues from investment management agreements that may be terminated on short notice.
        Each Adviser derives a substantial portion of its revenues from investment management agreements that may be terminated on short notice. The “non-call” periods on a significant portion of the CLOs the we manage have elapsed, enabling investors to “call” (i.e., initiate liquidation of) such CLOs on relatively short notice. If a CLO is liquidated, we will cease to earn management fees in respect of such CLO. In addition, with respect to the Advisers' agreements with certain of the funds they manage, an Adviser can be removed without cause by investors that hold a specified amount of the interests issued by the fund. Additionally, the Advisers' agreements with CLOs allow investors that hold a specified amount of securities issued by the CLO to remove the Adviser for "cause," which typically includes an Adviser's violation of the management agreement or the related indenture; an Adviser's breach of its representations and warranties under the agreement; an Adviser's bankruptcy or insolvency; fraud or the commitment of a criminal offense by an Adviser or its employees; the failure of certain of the CLOs' performance tests; and willful misconduct, bad faith or gross negligence by the Adviser. These "cause" provisions may be triggered from time to time, and as a result, investors could elect to remove the relevant Adviser as the investment manager of such fund. The termination of an Adviser's investment management agreements could adversely affect our financial performance.
We may be unable to maintain adequate liquidity to support our ongoing operations and planned growth.
        As of December 31, 2014 and 2013, we had unrestricted cash and cash equivalents of $59.3 million and $25.5 million, respectively. Cash generated from operations may not provide sufficient liquidity to fund our operations and pay general corporate expenses. Declines in the fair value of our assets may also adversely affect our liquidity. If we are unable to maintain adequate liquidity, we may be unable to support our ongoing operations and planned growth, which would have a material adverse effect on our financial condition.
Defaults, downgrades and depressed market values of the collateral underlying CLOs may cause the decline in and deferral of investment advisory income and the reduction of AUM.
        Under the investment management agreements between the Advisers and the CLOs they manage, payment of an Adviser's management fees is generally subject to a "waterfall" structure. Pursuant to these "waterfalls," all or a portion of an Adviser's fees may be deferred if, among other things, the CLOs do not generate sufficient cash flows to pay the required interest on the notes they have issued to investors and certain expenses they have incurred. Deferrals could occur if the issuers of the collateral underlying the CLOs default on or defer payments of principal or interest relating to such collateral. Due to severe levels of defaults and delinquencies on the assets underlying certain of the CLOs managed by the Advisers, in the past, we have both experienced declines in and deferrals of management fees. Further, during such periods and pursuant to the waterfalls, the CLOs may be required to repay certain of these liabilities, which repayment permanently reduces our AUM and related management fees pursuant to which we can recoup deferred subordinated fees. If similar defaults and delinquencies resume, the Advisers could experience additional declines in and deferrals of their management fees.        
Additionally, all or a portion of an Adviser's management fees from the CLOs that it manages may be deferred if such CLOs fail to satisfy certain “over-collateralization” tests. Pursuant to the "waterfall" structure discussed above, such failures generally require cash flows to be diverted to prepay certain of the CLO's liabilities resulting in similar permanent reductions in AUM and management fees in respect of such CLOs. Defaulted assets and assets that have been severely downgraded are generally carried at a reduced value for purposes of the over-collateralization tests. In some CLOs, these assets are required to be carried at their market values for purposes of the over-collateralization tests. Due to exceptionally high levels of defaults, severe downgrades and depressed market values of the collateral underlying certain CLOs managed by the Advisers, some CLOs have breached their over-collateralization tests, and the Advisers have therefore experienced, and may continue to experience, declines in and deferrals of their management fees which could have a material and adverse effect on us.
The Advisers could lose management income or AUM from the CLOs they manage as a result of the triggering of certain structural protections built into such CLOs.
        The CLOs managed by the Advisers generally contain structural provisions including, but not limited to, the over-collateralization tests discussed above and/or market value triggers that are meant to protect investors from deterioration in the credit quality of the underlying collateral pool. In certain cases, non-compliance with these structural provisions can lead to events of default under the indenture governing a CLO followed by the acceleration of the CLO's obligation to repay the notes issued by the CLO and, ultimately, liquidation of the underlying collateral. In the event of a liquidation of the collateral underlying a CLO, the relevant Adviser will lose AUM and therefore management fees, which could have a material and adverse effect on us. Three of the CDOs of asset backed securities that DCM manages have triggered events of default primarily resulting from downgrades of their underlying collateral. The notes issued by these CDOs have been accelerated. However, pursuant to the indentures governing these CDOs, the CDOs will not be liquidated unless either the proceeds of such liquidation will be sufficient to pay off all of the notes issued by the CDO, the accrued management fees and certain administrative expenses or the holders of a supermajority (or, in the case of one of the CDOs that has triggered an event of default but not an acceleration of notes, a majority) of the notes direct the liquidation.

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An Adviser's failure to comply with investment guidelines set by its clients or the provisions of the management agreement and other agreements to which it is a party could result in damage awards against such Adviser and a loss of AUM, either of which could have a material adverse effect on us.
        As an investment adviser, each Adviser has a fiduciary duty to its clients. When clients retain an Adviser to manage assets on their behalf, they may specify certain guidelines regarding investment allocation and strategy that such Adviser is required to observe in the management of its portfolios. In addition, such Adviser is required to comply with the obligations set forth in the management agreements and other agreements to which it is a party. Although each Adviser utilizes procedures, processes and the services of experienced advisors to assist it in adhering to these guidelines and agreements, we cannot assure you that such precautions will protect us from potential liabilities. An Adviser's failure to comply with these guidelines or the terms of these agreements could have a material adverse effect on us.
We could incur losses due to trading errors by the Advisers.
        The Advisers could make errors in placing transaction orders for investment products they manage, such as purchasing a security for a product whose investment guidelines prohibit the product from holding the security, purchasing an unintended amount of the security, or placing a buy order when an Adviser intended to place a sell order, or vice-versa. If the transaction resulted in a loss for the product, the relevant Adviser might be required to reimburse the product for the loss. Such reimbursements could be substantial. It is also possible that we could be subject to intentional misconduct by our employees or others that could result in severe negative consequences, including financial penalties and reputational harm. These errors and misconduct could affect trades on behalf of the Advisers, which could exacerbate the adverse financial impact on us.
The Advisers depend on third-party distribution channels to market their CLOs.
        The Advisers' CLO management services are marketed by institutions that act as selling or placement agents for CLOs. The potential investor base for CLOs is limited, and the Advisers' ability to access clients is highly dependent on access to these selling and placement agents. These channels may not be accessible to the Advisers, which could have a material and adverse effect on the Advisers' ability to launch new CLOs. In addition, the Advisers' existing relationships with third-party distributors and access to new distributors could be adversely impacted by recent consolidation in the financial services industry, which could result in increased distribution costs, a reduction in the number of third parties selling or placing the Advisers' CLOs or increased competition to access third-party distribution channels.
We may invest in the subordinated and mezzanine notes of CLOs, and such investments involve various risks, including that CLO subordinated notes receive distributions from the CLO only if the CLO generates enough income to first pay the holders of its debt securities and its expenses.
        Our assets include investments in subordinated and mezzanine notes of certain CLOs we manage, and we may buy subordinated and mezzanine notes of, or other interests in, other CLOs. The subordinated notes are usually entitled to all of the income generated by the CLO after the CLO pays all of the interest due on the debt notes and its expenses. However, there will be little or no income available to the CLO subordinated notes if there are defaults on the underlying collateral in excess of certain amounts or if the recoveries on such defaulted collateral are less than certain amounts. In that event, the value of our investment in the CLO's subordinated notes could decrease substantially. In addition, the subordinated notes of CLOs are generally illiquid, and because they represent a leveraged investment in the CLO's assets, their value will generally fluctuate more than the values of the underlying collateral. We are required to consolidate certain CLOs we manage, however, we have no right to the benefits from, nor do we bear the risk associated with, the assets held by such CLOs, beyond our minimal direct investments and beneficial interests in, and management fees generated from, them.
We elected to become a "controlled company" within the meaning of the NASDAQ rules and, as a result, qualify for, and rely on, exemptions from certain corporate governance requirements intended to protect public stockholders' interests.
        DFR Holdings controls a majority of the voting power of our outstanding common stock. As a result, we elected to qualify as a "controlled company" within the meaning of the corporate governance standards of the NASDAQ rules. Under these rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a "controlled company" and may elect not to comply with certain corporate governance requirements, including:
the requirement that a majority of our Board consist of independent directors; 
the requirement that we have independent director oversight of executive officer compensation; and 
the requirement that we have independent director oversight of director nominations.

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        We have agreed pursuant to the Third Amended and Restated Stockholders Agreement to utilize these exemptions. As a result, our Board does not have a majority of independent directors, and its nominating and corporate governance committee and compensation committee do not consist entirely of independent directors. Accordingly, our stockholders do not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements under the NASDAQ rules.
The market price of our common stock may decline as a result of the exercise of certain registration rights granted to DFR Holdings.
        We are unable to predict the potential effects of the exercise of previously granted registration rights on the trading activity and market price of our common stock. We have granted registration rights to DFR Holdings for the resale of certain shares received by them in the CNCIM Acquisition. These registration rights would facilitate the resale of such securities into the public market, and any such resale would increase the number of shares of our common stock available for public trading. Sales by DFR Holdings of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the market price of our common stock.
Item 1B.    Unresolved Staff Comments
None.
Item 2.    Properties
Our headquarters are located in New York, New York. We lease office space at 250 Park Avenue, 4th Floor, New York, New York 10177. We do not own any real property.
Item 3.    Legal Proceedings

None.

Item 4.    Mine Safety Disclosures
None.

17



PART II. Other Information

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is traded on NASDAQ under the trading symbol "CIFC." As of March 9, 2015, we had approximately 834 holders of record. This does not include the number of shareholders that hold shares in “street name” through banks or broker-dealers.
The following table sets forth, for the periods indicated, the high and low sales price per share of our common stock as reported on the NASDAQ:
 
2014
 
2013
 
High
 
Low
 
High
 
Low
4th Quarter
$
10.09

 
$
7.66

 
$
8.30

 
$
7.30

3rd Quarter
$
10.16

 
$
8.14

 
$
8.37

 
$
6.77

2nd Quarter
$
9.97

 
$
7.30

 
$
8.49

 
$
6.60

1st Quarter
$
8.79

 
$
7.43

 
$
9.05

 
$
7.10

Dividends
Dividends per Common Share (declared):
 
 
1st Quarter
 
2nd Quarter
 
3rd Quarter
 
4th Quarter
2014
 
$0.10
 
$0.10
 
$0.10
 
$0.10
2013
 
n/a
 
n/a
 
$0.10
 
$0.10
We declared a $0.10 quarterly dividend during the third and fourth quarter of 2013. For the years ended December 31, 2014 and 2013, total aggregated annual dividends declared was $0.40 and $0.20, respectively, per common share. Subsequent to year end, we declared a cash dividend of $0.10 per share. The dividend will be paid on April 15, 2015 to shareholders of record as of the close of business on April 2, 2015.
Dividend distributions will be subject to the restricted payment covenants contained in the indentures governing our Junior Subordinated Notes. See Item 8—"Financial Statements and Supplementary Data—Note 11" for more information regarding the restrictive covenants contained in our Junior Subordinated Notes.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers

No common shares were repurchased during the year ended December 31, 2014.


18


Equity Compensation Plan Information
The following table sets forth certain information, as of December 31, 2014, regarding our equity compensation plans (1):
Plan Category
 
(a)
Number of securities to be issued upon exercise of
outstanding options,
warrants and rights
 
(b)
Weighted-average exercise price of outstanding options,
warrants and rights
 
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plan (excluding securities reflected in column (a))
Equity compensation plans approved by security holders - stock options
 
3,635,313

 
$
6.68

 
n/a

Equity compensation plans approved by security holders - restricted stock units
 
1,248,444

 
n/a

 
n/a

   Total (2)
 
4,883,757

 
 
 
1,053,544


Explanatory Note:
_________________________________
(1)
See Item 8—"Financial Statements and Supplementary Data—Note 12" for a summary of our equity compensation plans.
(2) Number of securities remaining available for future issuance under the equity compensation plan encompasses both stock options and restricted stock units. The plan does not differentiate between various types of securities that may be issued.



19


Item 6.    Selected Financial Data
As a smaller reporting company, we are not required to provide the information required by Item 6.


20


Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

The statements in this discussion regarding the industry outlook and our expectations regarding the future performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Special Note Regarding Forward-Looking Statements and Part I—Item 1A—"Risk Factors". You should read the following discussion together with our consolidated financial statements and notes thereto included in Part II—Item 8— "Financial Statements and Supplementary Data."

Overview
 
CIFC Corp. (“CIFC” and, together with its subsidiaries, “we” or "us") is a Delaware corporation headquartered in New York City. We are a fundamentals-based, relative value, alternative credit manager. Our primary business is to provide investment management services for investment products. We manage assets for various types of investors, including pension funds, hedge funds, other asset management firms, banks, insurance companies and other types of institutional investors across the world.
Our assets under management (“AUM”) are primarily comprised of Collateralized Loan Obligations ("CLOs"), credit funds, separately managed accounts ("SMAs"), and other-loan based products (together, with credit funds and SMAs, "Non-CLO products"). We manage these credit products through opportunistic investment strategies where we seek to generate both current income and capital appreciation, primarily through senior secured corporate loans (“SSCLs”) investments and, to a lesser extent, other investments. We also manage Collateralized Debt Obligations (“CDOs”) which we do not expect to issue in the future.

Management internally views and manages the business as one reportable segment. We operate as a single operating segment as managed by our Co-Presidents, who are considered our chief operating decision maker ("CODM"). The CODM bears the ultimate responsibility for, and is actively engaged in, the allocation of resources and the evaluation of our operating and financial results. We have concluded that CIFC has a single operating segment based on the following:

We are managed under a functionally-based organizational structure with the head of each function reporting directly to the CODM;

Our CODM allocates resources and makes other operating decisions based on specific business opportunities and;

We have an integrated investment process through which the Investment Research, Portfolio Management and Trading teams support all the products that we offer.

We have three primary sources of revenue: management fees, incentive fees and investment income. Management fees are generally earned based on the amount of assets managed (or AUM), incentive fees are earned based on the performance of the funds and investment income is earned based on the performance of our direct investment in our products. See Note 2.

As of December 31, 2014, DFR Holdings LLC ("DFR Holdings"), on a fully-diluted basis, owns approximately 70% of our diluted shares outstanding.

Executive Overview

We had a record year in our core CLO business. We sponsored the issuance of five CLOs representing $3.2 billion of new AUM, making CIFC the second largest U.S. CLO sponsor in 2014 by AUM (source: Standard and Poor’s Capital IQ LCD). This exceeds our previous record of $2.5 billion in 2013 by 28%. In addition, we made good progress with broadening the platform outside of CLOs. We manage $593.5 million across various credit funds and customized SMAs, and are gaining good traction with institutional investors.
We have a strong balance sheet with $160.5 million of cash and investments with no debt maturing for 20 years. During the year, we reduced our outstanding debt by $25.0 million and paid $9.2 million of dividends to our shareholders.
For the year ended December 31, 2014, we reported GAAP net income attributable to CIFC Corp. of $8.4 million, as compared to $23.4 million in the prior year. We reported Economic Net Income ("ENI", a non-GAAP measure) of $36.1 million for the year ended December 31, 2014, as compared to $41.9 million for the prior year. See "Results of Consolidated Operations" for detailed discussion.




21


Fee Earning AUM

Fee Earning Assets Under Management ("Fee Earning AUM" or "AUM") refers to the assets managed by us on which we are paid management fees and/or incentive fees. Generally, with respect to CLOs, management fees are paid to CIFC based on the aggregate collateral balance at par plus principal cash, and with respect to Non-CLO funds, the value of the assets in such funds (excluding non-fee earning AUM such as our investments).
The following table summarizes the Fee Earning AUM, for which we are paid a management fee, by significant investment product category (1)(2):
 
 
December 31, 2014
 
December 31, 2013
 
Number of Accounts
 
Fee Earning AUM
 
Number of Accounts
 
Fee Earning AUM
 
 
 
(In thousands)
 
 
 
(In thousands)
Post 2011 CLOs
13

 
$
7,402,986

 
8

 
$
4,127,951

Legacy CLOs (3)
19

 
4,960,877

 
20

 
6,811,382

     Total CLOs
32

 
12,363,863

 
28

 
10,939,333

Credit Funds & SMAs (4)
8

 
593,456

 
5

 
406,857

Other Loan-Based Products (4)
2

 
719,170

 
1

 
699,669

Total Non-CLOs (4)
10

 
1,312,626

 
6

 
1,106,526

Total Loan-Based AUM
42

 
13,676,489

 
34

 
12,045,859

ABS and Corporate Bond CDOs
8

 
687,555

 
8

 
802,821

Total Fee Earning AUM
50

 
$
14,364,044

 
42

 
$
12,848,680


Explanatory Notes:
_________________________________
(1)
We do not expect to issue new CDOs in the future. Fee Earning AUM on CDOs is expected to continue to decline as these funds run-off per their contractual terms.
(2)
Fee Earning AUM is based on latest available monthly report issued by the trustee or fund administrator prior to the end of the period, and may not tie back to Consolidated GAAP financial statements.
(3)
Legacy CLOs represent all managed CLOs issued prior to 2011, including CLOs acquired since 2011 but issued prior to 2011.
(4)
Management fees for Non-CLO products vary by fund and may not be similar to a CLO.

    

22


Fee Earning AUM activities are as follows:
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
 
(In thousands)
Total loan-based AUM - Beginning Balance
 
$
12,045,859

 
$
11,844,898

CLO New Issuances
 
3,249,990

 
2,530,869

CLO Principal Paydown
 
(1,761,162
)
 
(2,013,497
)
CLO Calls, Redemptions and Sales
 
(86,693
)
 
(681,167
)
Fund Subscriptions
 
206,918

 
494,161

Fund Redemptions
 
(26,625
)
 
(10,354
)
Other (1)
 
48,202

 
(119,051
)
Total loan-based AUM - Ending Balance
 
13,676,489

 
12,045,859

Total CDOs - Ending Balance
 
687,555

 
802,821

Total Fee Earning AUM - Ending Balance
 
$
14,364,044

 
$
12,848,680


Explanatory Note:
_________________________________
(1)     Other includes changes in collateral balances of CLOs between periods and market value or portfolio value changes in certain Non-CLO products.

    
During the year ended December 31, 2014, total AUM increased by $1.5 billion. During the year, we sponsored the issuance of five CLOs, added three new credit funds and SMAs and increased subscriptions to existing funds, resulting in a $3.5 billion increase in Fee Earning AUM. New AUM was offset by declines in AUM for certain Legacy CLOs and CDOs aggregating $2.0 billion which have reached the end of their contractual reinvestment periods.

As of December 31, 2014, all of the CLOs and CDOs we manage and issued prior to 2011 have passed their reinvestment period whereby proceeds from paydown or sale of assets are required to repay the CLO or CDO's liabilities. As expected, AUM on these CLOs and CDOs continued to decline during the year ended December 31, 2014. Further, we do not expect to sponsor new CDOs and expect CDO AUM to continue to decline going forward as these funds run-off per their contractual terms. During 2014, we have replaced run-off from Legacy CLOs (including acquired CLOs) through organic growth from CLOs and Non-CLO products. Since the second quarter of 2014, our Legacy CLO AUM was less than half of our loan-based AUM.


23


The structure of the CLOs we manage affects the management fees paid to us. The following table summarizes select details of the structure of each of the CLOs we manage:
 
 
Issuance Date
 
December 31, 2014
Fee Earning AUM
 
First Optional
Call Date (1)
 
Termination of
Reinvestment
Period (2)
 
Maturity
Year (3)
 
 
Month/Year
 
(In thousands)
 
Month/Year
 
 
Post 2011 CLOs
 
 
 
 
 
 
 
 
 
 
CIFC Funding 2011-I, Ltd.
 
01/12
 
$
402,617

 
01/14
 
01/15
 
2023
CIFC Funding 2012-I, Ltd.
 
07/12
 
454,986

 
08/14
 
08/16
 
2024
CIFC Funding 2012-II, Ltd.
 
11/12
 
733,776

 
12/14
 
12/16
 
2024
CIFC Funding 2012-III, Ltd.
 
01/13
 
505,386

 
01/15
 
01/17
 
2025
CIFC Funding 2013-I, Ltd.
 
03/13
 
506,659

 
04/15
 
04/17
 
2025
CIFC Funding 2013-II, Ltd.
 
06/13
 
629,011

 
07/15
 
07/17
 
2025
   CIFC Funding 2013-III, Ltd.
 
09/13
 
404,387

 
10/15
 
10/17
 
2025
   CIFC Funding 2013-IV, Ltd.
 
11/13
 
504,647

 
11/15
 
11/17
 
2024
   CIFC Funding 2014, Ltd.
 
03/14
 
601,890

 
04/16
 
04/18
 
2025
CIFC Funding 2014-II, Ltd.
 
05/14
 
805,408

 
05/16
 
05/18
 
2026
CIFC Funding 2014-III, Ltd.
 
07/14
 
702,782

 
07/16
 
07/18
 
2026
CIFC Funding 2014-IV, Ltd.
 
09/14
 
601,910

 
10/16
 
10/18
 
2026
CIFC Funding 2014-V, Ltd.
 
12/14
 
549,527

 
10/16
 
01/19
 
2027
Total Post 2011 CLOs
 
 
 
7,402,986

 
 
 
 
 
 
Legacy CLOs
 
 
 
 
 
 
 
 
 
 
Navigator 2005 CLO, Ltd.
 
07/05
 
7,383

 
10/11
 
10/11
 
2017
Bridgeport CLO Ltd. 
 
06/06
 
338,172

 
10/09
 
07/13
 
2020
CIFC Funding 2006-I, Ltd. 
 
08/06
 
168,406

 
10/10
 
10/12
 
2020
Columbus Nova 2006-I, Ltd.
 
08/06
 
196,969

 
10/09
 
10/12
 
2018
Navigator 2006 CLO, Ltd.
 
09/06
 
122,809

 
09/10
 
09/13
 
2020
CIFC Funding 2006-I B, Ltd. 
 
10/06
 
155,041

 
12/10
 
12/12
 
2020
Burr Ridge CLO Plus Ltd. 
 
12/06
 
231,681

 
06/12
 
03/13
 
2023
CIFC Funding 2006-II, Ltd. 
 
12/06
 
284,420

 
03/11
 
03/13
 
2021
Columbus Nova 2006-II, Ltd.
 
12/06
 
233,388

 
02/10
 
02/13
 
2018
Hewett's Island CLO V, Ltd. 
 
12/06
 
76,538

 
12/09
 
12/12
 
2018
CIFC Funding 2007-I, Ltd. 
 
02/07
 
280,692

 
05/11
 
11/13
 
2021
CIFC Funding 2007-II, Ltd. 
 
03/07
 
491,002

 
04/11
 
04/14
 
2021
Columbus Nova 2007-I, Ltd.
 
03/07
 
227,269

 
05/10
 
05/13
 
2019
Hewett's Island CLO VI, Ltd. 
 
05/07
 
114,418

 
06/10
 
06/13
 
2019
Schiller Park CLO Ltd. 
 
05/07
 
345,049

 
07/11
 
04/13
 
2021
Bridgeport CLO II Ltd. 
 
06/07
 
490,058

 
12/10
 
09/14
 
2021
CIFC Funding 2007-III, Ltd. 
 
07/07
 
414,809

 
07/10
 
07/14
 
2021
Primus CLO II, Ltd. 
 
07/07
 
350,392

 
10/11
 
07/14
 
2021
Columbus Nova 2007-II, Ltd.
 
11/07
 
432,381

 
10/10
 
10/14
 
2021
Total Legacy CLOs
 
 
 
4,960,877

 
 
 
 
 
 
Total CLOs
 
 
 
$
12,363,863

 
 
 
 
 
 
Explanatory Notes:
_________________________________
(1)
CLOs are generally callable by equity holders (or the subordinated note holders of the CLO) once per quarter beginning on the "first optional call date" and subject to satisfaction of certain conditions. 
(2)
Termination of reinvestment period refers to the date after which we can no longer use certain principal collections to purchase additional collateral, and such collections are instead used to repay the outstanding amounts of certain debt securities issued by the CLO. 
(3)
Represents the contractual maturity of the CLO. Generally, the actual maturity of the deal is expected to occur in advance of contractual maturity. 




24


Results of Consolidated Operations
 
The Consolidated Financial Statements include the financial statements of our wholly owned subsidiaries, the entities in which we have a controlling interest ("Consolidated Funds") and variable interest entities ("VIEs" or "Consolidated VIEs") for which we are deemed to be the primary beneficiary (together the "Consolidated Entities"). Consolidated VIEs includes certain CLOs and warehouses we manage. The following table presents our comparative Consolidated Statements of Operations for the years ended December 31, 2014 and 2013:

 
For the Years Ended December 31,
 
2014 vs. 2013
 
2014
 
2013
 
Change
 
% Change
 
(In thousands, except share and per share amounts)
 
 
Revenues
 

 
 

 
 

 
 
Management fees
$
4,868

 
$
8,400

 
$
(3,532
)
 
(42
)%
Net investment income
790

 
333

 
457

 
137
 %
Total net revenues
5,658

 
8,733

 
(3,075
)
 
(35
)%
Expenses
 

 
 

 
 

 
 
Employee compensation and benefits
31,223

 
30,339

 
884

 
3
 %
Professional services
7,259

 
5,277

 
1,982

 
38
 %
General and administrative expenses
10,960

 
7,707

 
3,253

 
42
 %
Depreciation and amortization
11,421

 
15,541

 
(4,120
)
 
(27
)%
Impairment of intangible assets

 
3,106

 
(3,106
)
 

Total expenses
60,863

 
61,970

 
(1,107
)
 
(2
)%
Other Income (Expense) and Gain (Loss)
 

 
 

 
 

 
 
Net gain (loss) on investments
2,474

 
1,822

 
652

 
36
 %
Net gain (loss) on contingent liabilities
(2,932
)
 
1,644

 
(4,576
)
 
(278
)%
Corporate interest expense
(4,236
)
 
(5,865
)
 
1,629

 
(28
)%
Net gain on the sale of management contract
229

 
1,386

 
(1,157
)
 
(83
)%
Other, net

 
(2
)
 
2

 
(100
)%
Net other income (expense) and gain (loss)
(4,465
)
 
(1,015
)
 
(3,450
)
 
340
 %
Operating income (loss)
(59,670
)
 
(54,252
)
 
(5,418
)
 
10
 %
 
 
 
 
 
 
 


Net results of Consolidated Entities
69,505

 
169,869

 
(100,364
)
 
(59
)%
Income (loss) before income taxes
9,835

 
115,617

 
(105,782
)
 
(91
)%
Income tax (expense) benefit
(22,158
)
 
(18,782
)
 
(3,376
)
 
18
 %
Net income (loss)
(12,323
)
 
96,835

 
(109,158
)
 
(113
)%
Net (income) loss attributable to noncontrolling interest in Consolidated Entities
20,704

 
(73,464
)
 
94,168

 
(128
)%
Net income (loss) attributable to CIFC Corp.
$
8,381

 
$
23,371

 
$
(14,990
)
 
(64
)%
Earnings (loss) per share:
 

 
 

 
 

 
 
Basic
$
0.37

 
$
1.12

 
$
(0.75
)
 
(67
)%
Diluted
$
0.35

 
$
0.98

 
$
(0.63
)
 
(64
)%
Weighted-average number of shares outstanding:
 

 
 

 
 

 
 
Basic
22,908,846

 
20,800,580

 
2,108,266

 
10
 %
Diluted
24,167,641

 
25,737,363

 
(1,569,722
)
 
(6
)%
 
Net income (loss) attributable to CIFC Corp. was $8.4 million, or $0.35 per fully diluted share for the year ended December 31, 2014, compared to $23.4 million, or $0.98 per fully diluted share, for the year ended December 31, 2013. Net income (loss) attributable to CIFC Corp. decreased by $15.0 million in 2014 from the prior year predominantly due to the following net results:
    

25


Total Net Revenues—GAAP net revenues include management fees from unconsolidated CLOs, CDOs and Non-CLO products. Unconsolidated funds included 1 CLO, 8 CDOs, and 4 other investment products as of December 31, 2014 compared to 5 CLOs, 8 CDOs and 1 other investment product as of December 31, 2013. Total net revenues decreased $3.1 million or 35% in 2014 from the prior year primarily due to reductions in AUM from unconsolidated funds that liquidated during 2013 and 2014. Since new CLOs are consolidated, management fees are eliminated in consolidation. In addition, certain unconsolidated CLOs and CDOs have reached the end of their contractual reinvestment periods thereby reducing AUM and its related management fees. This decrease is slightly offset by management fees from Non-CLO products as AUM from these products has increased since the same period in the prior year.

Total Expenses—Total expenses decreased by $1.1 million or 2% in 2014 primarily due to decreases in depreciation and amortization expenses and the intangible assets impairment recognized during 2013. These decreases were partially offset by increases in general and administrative expense, professional fees and employee compensation and benefits to support the continued growth of our business.

Depreciation and amortization and intangible assets impairment decreased by $7.2 million or 39% in 2014 from the prior year primarily due to the one-time impairment charge recognized in the prior year and a reduction in amortization expense on intangible assets related to management contracts acquired for certain CLOs and CDOs that were impaired or written off in the prior year.

General and administrative expenses increased by $3.3 million or 42% in 2014 due to increases in subscription fees paid for enhancements to investment research products, an increase in fees to members of our Board of Directors and investments in technology. In addition, we incurred an additional $0.6 million charge related to a litigation settlement (see "Item 8—Consolidated Financial Statements —Note 17").

During the year ended December 31, 2014, we entered into a consulting agreement with DFR Holdings, whereby DFR Holdings provides us with strategic advisory services on an ongoing basis. As part of the consulting agreement, we incurred professional fees of $2.0 million.

Employee compensation and benefits increased by $0.9 million or 3% in 2014 from the prior year as a result of an increase in compensation for certain key employees. These increases were partially offset by reductions in stock compensation costs as CIFC Parent Holdings LLC ("CIFC Parent") Profits Interests Awards primarily completed vesting in 2013 and vesting of stock options for our Vice Chairman was accelerated in the fourth quarter of 2013.

Net other income (expense) and gain (loss)—Total Net other income and gains decreased by $3.5 million or 340% in 2014 from the prior year, primarily due to a $4.6 million loss from increase in fair value of contingent liabilities related to improvements in expected performance of legacy CIFC CLOs with fee sharing arrangements. In addition, we recognized $1.2 million of gains from contingent payments collected on the sale of our rights to manage Gillespie CLO PLC in 2013. These decreases in other income and gains were partially offset by decreased corporate interest expense of $1.6 million and increases in net gains on Investments from the settlement of warehouses and realization of gains from the sales of certain CLO residual equity of $0.7 million during the current year. In July 2014, we converted our $25.0 million aggregate principal amount of Convertible Notes into 4.1 million shares of common stock which reduced corporate interest expense for the year ended December 31, 2014 from the prior year.
    
Net results of Consolidated Entities attributable to CIFC Corp.—The table below represents our share in the net results of the Consolidated Entities and a reconciliation to the characteristics of these results:
 
 
For the Years Ended December 31,
 
2014 vs. 2013
 
 
2014
 
2013
 
Change
 
% Change
 
 
(In thousands)
 
 
 
 
Net results of Consolidated Entities
 
$
69,505

 
$
169,869

 
$
(100,364
)
 
(59
)%
Net (income) loss attributable to noncontrolling interest in Consolidated Entities
 
20,704

 
(73,464
)
 
94,168

 
(128
)%
   Net results of Consolidated Entities attributable to CIFC Corp.
 
$
90,209

 
$
96,405

 
$
(6,196
)
 
(6
)%
 
 
 
 
 
 
 
 
 
Characteristics of net results of Consolidated Entities attributable to CIFC Corp:
 
 
 
 
 
 
 
 
Consolidated Entities management fees
 
$
79,334

 
$
82,317

 
$
(2,983
)
 
(4
)%
Consolidated Entities net investment income
 
10,875

 
14,088

 
(3,213
)
 
(23
)%
 Net results of Consolidated Entities attributable to CIFC Corp.
 
$
90,209

 
$
96,405

 
$
(6,196
)
 
(6
)%

26



Net results of Consolidated Entities attributable to CIFC Corp. includes our portion of the Consolidated Entities' (including our Consolidated VIEs, or CLOs and warehouses) operating results. During the years ended December 31, 2014 and 2013, we recognized $90.2 million and $96.4 million, respectively, of Consolidated Entities' management fees and net investment interest income related to our investments in the Consolidated Entities.

The $6.2 million or 6% decrease in Net results of Consolidated Entities attributable to CIFC Corp. in 2014 was due to a $3.0 million decrease in management fees and a $3.2 million decrease in consolidated Entities' net investment income. The decrease in management fees was due to AUM decreases from consolidated legacy CLOs, which have reached the end of their contractual reinvestment periods and are amortizing pursuant to their contractual terms. Net investment income decreased in 2014 primarily driven by decreases in net gains from our warehouses, credit funds and CLO investments resulting from decreases in loan values in the current year.

Income tax expense/benefit—The following table summarizes our tax position:
 
 
For the Years Ended December 31,
 
 
2014
 
2013
 
 
(in thousands)
Income (loss) before income taxes
 
$
9,835

 
$
115,617

Income tax expense
 
$
22,158

 
$
18,782

Effective income tax rate
 
225.3
%
 
16.25
%

The effective tax rate, including noncontrolling interests in Consolidated VIEs, was 225.3% and 16.25%, for the years ended December 31, 2014 and 2013, respectively. The provision for Income tax expense excludes the income or (loss) earned by Consolidated VIEs.  As a result, the change in the effective tax rate compared with the prior year is primarily attributable to the Consolidated VIEs noncontrolling interest generating a loss in 2014 compared to income generated in 2013. The loss from the Consolidated VIEs is included in pre-tax income/(loss) but does not provide tax benefit  to CIFC Corp. The change in the effective tax rate is further impacted by the write-down of deferred tax assets resulting from the tax law changes enacted by New York State in March 2014 that are effective for tax years beginning on or after January 1, 2015. During the year ended December 31, 2014, we included a tax expense of approximately $6.4 million related to the change in New York State tax laws. The effective tax rate includes the impact of expenses not deductible for tax purpose primarily consisting of revaluation of the contingent payments to CIFC Parent and non-deductible officers’ compensation. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the result of new judicial interpretations or changes in tax laws or regulations.

ENI and Deconsolidated Non-GAAP Statements (Non-GAAP Measures, unaudited)
 
ENI
    
ENI is a non-GAAP financial measure of profitability which management uses in addition to GAAP Net income attributable to CIFC Corp. to measure the performance of our core business (excluding non-core products). We believe ENI reflects the nature and substance of the business, the economic results driven by management fee revenues from the management of client funds and earnings on our investments. ENI represents net income (loss) attributable to CIFC Corp. excluding (i) income taxes, (ii) merger and acquisition related items including fee-sharing arrangements, amortization and impairments of intangible assets and gain (loss) on contingent consideration for earn-outs, (iii) non-cash compensation related to profits interests granted by CIFC Parent in June 2011, (iv) revenues attributable to non-core investment products, and (v) other non-recurring items.


27


ENI may not be comparable to similar measures presented by other companies, as they are non-GAAP financial measures that are not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. In addition, ENI should be considered an addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP. The following is a reconciliation of GAAP Net income (loss) attributable to CIFC Corp. to ENI:

 
For the Years Ended December 31,
 
2014
 
2013
 
(in thousands)
GAAP Net income (loss) attributable to CIFC Corp.
$
8,381

 
$
23,371

Reconciling and non-recurring items:
 
 
 
Income tax expense (benefit)
22,158

 
18,782

Amortization and impairment of intangibles
10,149

 
17,913

Net (gain)/loss on contingent liabilities and other
2,932

 
(1,644
)
Compensation costs (1)
1,610

 
3,767

Management fees attributable to non-core funds
(814
)
 
(3,139
)
Management fee sharing arrangements (2)
(8,716
)
 
(15,744
)
Other non-recurring (3)
395

 
(1,386
)
Total reconciling and non-recurring items
27,714

 
18,549

ENI
$
36,095

 
$
41,920


Explanatory Notes:
______________________________
(1)
Compensation has been adjusted for non-cash compensation related to profits interests granted to CIFC employees by CIFC Parent and sharing of incentive fees with certain former employees established in connection with our acquisition of certain CLOs from Columbus Nova Credit Investments Management, LLC ("CNCIM").
(2)
We share management fees on certain of the acquired CLOs we manage (shared with the party that sold the funds to CIFC). Management fees are presented on a gross basis for GAAP and on a net basis for Non-GAAP ENI.
(3)
For the year ended December 31, 2014, other non-recurring represents litigation expenses of $0.6 million, which was partially offset by additional gains from contingent payments collected on the 2012 sale of our rights to manage Gillespie CLO PLC of $0.2 million. For the year ended December 31, 2013, other non-recurring represents additional gains from contingent payments collected on the 2012 sale of our rights to manage Gillespie CLO PLC of $1.4 million.




28


The following table presents our components of ENI for the years ended December 31, 2014 and 2013 (1):
 
 
For the Years Ended December 31,
 
2014 vs. 2013
 
2014
 
2013
 
Change
 
% Change
 
(in thousands)
 
 
Adjusted revenues
 
 
 
 
 
 
 
Senior Fees from CLOs
$
21,709

 
$
20,114

 
$
1,595

 
8
 %
Subordinated Fees from CLOs
32,900

 
33,745

 
(845
)
 
(3
)%
Incentive Fees from CLOs
16,660

 
16,272

 
388

 
2
 %
Fees from Non-CLO products
3,403

 
1,703

 
1,700

 
100
 %
Total adjusted management Fees
74,672

 
71,834

 
2,838

 
4
 %
CLO Funds
4,507

 
5,531

 
(1,024
)
 
(19
)%
Warehouses
6,139

 
9,388

 
(3,249
)
 
(35
)%
Other Non-CLO products
3,493

 
1,324

 
2,169

 
164
 %
Total adjusted net investment income
14,139

 
16,243

 
(2,104
)
 
(13
)%
Total adjusted net revenues
88,811

 
88,077

 
734

 
1
 %
 
 
 
 
 
 
 
 
Adjusted expenses
 
 
 
 
 

 
 
Employee compensation and benefits
29,613

 
26,572

 
3,041

 
11
 %
Professional services
7,259

 
5,277

 
1,982

 
38
 %
General and administrative expenses
10,336

 
7,707

 
2,629

 
34
 %
Depreciation and amortization
1,272

 
734

 
538

 
73
 %
Corporate interest expense
4,236

 
5,865

 
(1,629
)
 
(28
)%
Other, net

 
2

 
(2
)
 
(100
)%
Total adjusted expenses
52,716

 
46,157

 
6,559

 
14
 %
 
 
 
 
 
 
 
 
ENI
$
36,095

 
$
41,920

 
$
(5,825
)
 
(14
)%

Explanatory Note:
______________________________
(1)
Balances to this table can be derived by taking the deconsolidated non-GAAP Statement of Operations and adjusting balances using the ENI reconciliation.

For the years ended December 31, 2014 and 2013:

Adjusted Management Fees—Total adjusted management fees revenue increased by $2.8 million or 4% primarily as a result of an increase in senior management fees and fees from Non-CLO products. Senior management fees increased as AUM from CLOs launched since 2013 outpaced AUM runoff from legacy CLOs. Management fees from Non-CLO products increased as we earned higher management fees from increased AUM of the Non-CLO products. These increases were partially offset by decreases in subordinated fees related to catch-up subordinated fees received in 2013 on the liquidation of CLOs that had not paid fees in certain prior periods.

Adjusted net investment income—Total adjusted net investment income decreased by $2.1 million or 13% in 2014 compared to 2013. The decrease was predominately driven by decreases in loan values during the current year compared to the prior year.

Adjusted expenses—Total adjusted expenses increased by $6.6 million or 14% in 2014 compared to 2013 primarily due to an increase in adjusted employee compensation and benefits costs, adjusted general and administrative costs and adjusted professional fees. These increases were partially offset by decreases in adjusted corporate interest expense. Year over year, these costs increased to support the growth of the business.
 

29



Total adjusted employee compensation and benefits costs increased in 2014 compared to 2013 as a result of increases in compensation for certain key employees. Adjusted general and administrative costs increased due to increases in fees to our Board of Directors, increases in subscription fees paid for enhancements to investment research products, and investments in technology. During the year ended December 31, 2014, professional fees increased as we entered into a consulting agreement with DFR Holdings whereby DFR Holdings provides us with strategic advisory services on an ongoing basis. As part of the consulting agreement, we incurred professional fees of $2.0 million in 2014.

During the year ended December 31, 2014, we converted our $25.0 million aggregate principal amount of Convertible Notes into 4.1 million shares of common stock which reduced adjusted corporate interest expense by $1.6 million for the year ended December 31, 2014 from the prior year.

Deconsolidated Non-GAAP Statements
The Deconsolidated Non-GAAP Statements represents the Consolidated GAAP statements adjusted to eliminate the impact of the Consolidated Entities. On the Statement of Operations, we have reclassed the sum of Net results of Consolidated Entities, Net (income) loss attributable to noncontrolling interest in Consolidated Entities and Net gain (loss) on investments to the Deconsolidated Non-GAAP line items that represent its characteristics: management fees and interest income. On the Balance Sheets, we have excluded amounts related to all consolidated entities. Management uses these Non-GAAP statements in addition to Consolidated GAAP Statements to measure the performance of our core asset management business.     
    

30


The following table presents the reconciliation from GAAP to Deconsolidated Non-GAAP Statement of Operations for the years ended December 31, 2014 and 2013:

 
 
For the Years Ended December 31,
 
 
2014
 
2013
(In thousands)
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Management fees
 
$
4,868

 
$
79,334

 
$
84,202

 
$
8,400

 
$
82,317

 
$
90,717

Net investment income
 
790

 
13,349

 
14,139

 
333

 
15,910

 
16,243

Total net revenues
 
5,658

 
92,683

 
98,341

 
8,733

 
98,227

 
106,960

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
31,223

 

 
31,223

 
30,339

 

 
30,339

Professional services
 
7,259

 

 
7,259

 
5,277

 

 
5,277

General and administrative expenses
 
10,960

 

 
10,960

 
7,707

 

 
7,707

Depreciation and amortization
 
11,421

 

 
11,421

 
15,541

 

 
15,541

Impairment of intangible assets
 

 

 

 
3,106

 

 
3,106

Total expenses
 
60,863

 

 
60,863

 
61,970

 

 
61,970

Other Income (Expense) and Gain (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) on investments
 
2,474

 
(2,474
)
 

 
1,822

 
(1,822
)
 

Net gain (loss) on contingent liabilities
 
(2,932
)
 

 
(2,932
)
 
1,644

 

 
1,644

Corporate interest expense
 
(4,236
)
 

 
(4,236
)
 
(5,865
)
 

 
(5,865
)
Net gain on the sale of management contracts
 
229

 

 
229

 
1,386

 

 
1,386

Other, net
 

 

 

 
(2
)
 

 
(2
)
Net other income (expense) and gain (loss)
 
(4,465
)
 
(2,474
)
 
(6,939
)
 
(1,015
)
 
(1,822
)
 
(2,837
)
Operating income (loss)
 
(59,670
)
 
90,209

 
30,539

 
(54,252
)
 
96,405

 
42,153

Net results of Consolidated Entities
 
69,505

 
(69,505
)
 

 
169,869

 
(169,869
)
 

Income (loss) before income taxes
 
9,835

 
20,704

 
30,539

 
115,617

 
(73,464
)
 
42,153

Income tax (expense) benefit
 
(22,158
)
 

 
(22,158
)
 
(18,782
)
 

 
(18,782
)
Net income (loss)
 
(12,323
)
 
20,704

 
8,381

 
96,835

 
(73,464
)
 
23,371

Net (income) loss attributable to noncontrolling interest in Consolidated Entities
 
20,704

 
(20,704
)
 

 
(73,464
)
 
73,464

 

Net income (loss) attributable to CIFC Corp.
 
$
8,381

 
$

 
$
8,381

 
$
23,371

 
$

 
$
23,371



31


The following table presents the reconciliation from GAAP to Deconsolidated Non-GAAP Balance Sheets as of December 31, 2014 and 2013:

 
 
December 31, 2014
 
December 31, 2013
(In thousands)
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
59,290

 
$

 
$
59,290

 
$
25,497

 
$
(4,132
)
 
$
21,365

Restricted cash and cash equivalents
 
1,694

 

 
1,694

 
1,700

 

 
1,700

Due from brokers
 
1

 

 
1

 
18,813

 
(4,985
)
 
13,828

Investments
 
38,699

 
62,550

 
101,249

 
16,883

 
96,248

 
113,131

Receivables
 
2,134

 
4,346

 
6,480

 
2,120

 
3,814

 
5,934

Prepaid and other assets
 
4,115

 

 
4,115

 
5,104

 
(222
)
 
4,882

Deferred tax asset, net
 
55,475

 

 
55,475

 
57,675

 

 
57,675

Equipment and improvements, net
 
5,194

 

 
5,194

 
4,261

 

 
4,261

Intangible assets, net
 
15,074

 

 
15,074

 
25,223

 

 
25,223

Goodwill
 
76,000

 

 
76,000

 
76,000

 

 
76,000

Subtotal
 
257,676

 
66,896

 
324,572

 
233,276

 
90,723

 
323,999

Total assets of Consolidated Entities
 
12,890,459

 
(12,890,459
)
 

 
11,366,912

 
(11,366,912
)
 

TOTAL ASSETS
 
$
13,148,135

 
$
(12,823,563
)
 
$
324,572

 
$
11,600,188

 
$
(11,276,189
)
 
$
323,999

LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
Due to brokers
 
$

 
$

 
$

 
$
5,499

 
$
(4,991
)
 
$
508

Accrued and other liabilities
 
15,584

 

 
15,584

 
15,197

 
(270
)
 
14,927

Deferred purchase payments
 

 

 

 
1,179

 

 
1,179

Contingent liabilities
 
12,668

 

 
12,668

 
16,961

 

 
16,961

Long-term debt
 
120,000

 

 
120,000

 
139,164

 

 
139,164

Subtotal
 
148,252

 

 
148,252

 
178,000

 
(5,261
)
 
172,739

Total non-recourse liabilities of Consolidated Entities
 
12,477,981

 
(12,477,981
)
 

 
11,114,435

 
(11,114,435
)
 

TOTAL LIABILITIES
 
12,626,233

 
(12,477,981
)
 
148,252

 
11,292,435

 
(11,119,696
)
 
172,739

EQUITY
 
 
 
 
 

 
 
 
 
 
 
Common stock
 
25

 

 
25

 
21

 

 
21

Treasury stock
 
(914
)
 

 
(914
)
 
(914
)
 

 
(914
)
Additional paid-in capital
 
988,904

 

 
988,904

 
963,011

 

 
963,011

Retained earnings (deficit)
 
(811,695
)
 

 
(811,695
)
 
(810,858
)
 

 
(810,858
)
TOTAL CIFC CORP. STOCKHOLDERS’ EQUITY
 
176,320

 

 
176,320

 
151,260

 

 
151,260

Noncontrolling interest in Consolidated Funds
 
210,818

 
(210,818
)
 

 
5,107

 
(5,107
)
 

Appropriated retained earnings (deficit) of Consolidated Entities
 
134,764

 
(134,764
)
 

 
151,386

 
(151,386
)
 

TOTAL EQUITY
 
521,902

 
(345,582
)
 
176,320

 
307,753

 
(156,493
)
 
151,260

TOTAL LIABILITIES AND EQUITY
 
$
13,148,135

 
$
(12,823,563
)
 
$
324,572

 
$
11,600,188

 
$
(11,276,189
)
 
$
323,999



32


Liquidity and Capital Resources
 
As of December 31, 2014, total GAAP cash and cash equivalents increased by $33.8 million to $59.3 million from $25.5 million as of December 31, 2013. Net operating cash flows used for the year ended December 31, 2014 was $1.3 billion, which was primarily driven by the Consolidated Entities' utilization of $8.8 billion of cash to purchase investments and the receipt of $7.4 billion in cash proceeds from the sale of investments. In addition, financing activities generated net cash proceeds of $1.5 billion which was primary driven by the Consolidated Entities receiving $4.6 billion of proceeds from issuance of long-term debt and utilizing $3.2 billion to repay long-term debt during the period. In addition, we paid down $7.2 million of contingent liabilities (related to fee sharing arrangements). We also paid $9.2 million of dividends to our shareholders. During the year ended December 31, 2014, we paid income taxes of $19.1 million and received $13.3 million from brokers related to sales of investments in 2013. At December 31, 2014, our outstanding receivables from brokers were de minimis.
During the year ended December 31, 2014, total deconsolidated non-GAAP cash and cash equivalents increased by $37.9 million to $59.3 million from $21.4 million as of December 31, 2013. For the year ended December 31, 2014, de-consolidated non-GAAP cash flows provided by operating activities was $40.4 million, which includes $13.3 million received from brokers related to sale of investments in 2013. Our net proceeds from investment activities were $15.8 million. We invested $2.2 million in various hardware and software projects. During the year, we paid down $7.2 million of contingent liabilities (related to fee sharing arrangements). We also paid $9.2 million of dividends to our shareholders.
The table below is a reconciliation of selected cash flows data for the year ended December 31, 2014 from GAAP to Non-GAAP:
 
For the Year Ended December 31, 2014
(In thousands)
GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
Cash and Cash Equivalents, Beginning
$
25,497

 
$
(4,132
)
 
$
21,365

 
 
 
 
 
 
Net cash provided by/(used in) Operating Activities
(1,268,972
)
 
1,309,413

 
40,441

Net cash provided by/(used in) Investing Activities
(223,191
)
 
236,965

 
13,774

Net cash provided by/(used in) Financing Activities
1,525,956

 
(1,542,246
)
 
(16,290
)
    Net change in Cash and Cash Equivalents
33,793

 
4,132

 
37,925

 
 
 
 
 
 
Cash and Cash Equivalents, End
$
59,290

 
$

 
$
59,290

    
During the year ended December 31, 2014, our investments decreased by $11.9 million. During the year, we seeded additional capital in our credit funds and reduced investments in CLO residual interests and warehouses. Our investments as of December 31, 2014 and 2013 are as follows ($ in thousands):
Non-GAAP (1)
 
December 31, 2014
 
December 31, 2013
 
Change
CIFC Managed CLO Equity (Residual Interests)
 
$
25,239

 
$
44,292

 
$
(19,053
)
Warehouses (2)
 
21,134

 
32,529

 
(11,395
)
Fund Coinvestments
 
43,336

 
36,310

 
7,026

Other Investments
 
11,540

 

 
11,540

Total
 
$
101,249

 
$
113,131

 
$
(11,882
)

Explanatory Notes:
________________________________
(1)
Pursuant to GAAP, investments in consolidated CLOs, warehouses and certain Non-CLO products are eliminated from "Investments" on our Consolidated Balance Sheets.
(2)
From time to time, we establish “warehouses”, entities designed to accumulate investments in advance of sponsoring new CLOs or other funds managed by us.  To establish a warehouse, we contribute equity capital to a newly formed entity which is typically levered (three to five times) and begins accumulating investments.  When the related CLO or fund is sponsored, typically three to nine months later, the warehouse is “terminated”, with it concurrently repaying the related financing and returning to CIFC our equity contribution, net of gains and losses, if any.



33


Other Sources and Uses of Funds

Deferred Purchase Payments—In April 2011, we entered into a merger (the "Merger") with Commercial Industrial Finance Corp. ("Legacy CIFC"). As a result of the Merger, Legacy CIFC became CIFCAM, a wholly-owned subsidiary of CIFC. The consideration for the Merger included the payment to CIFC Parent Holdings LLC, the sole stockholder of Legacy CIFC, of $7.5 million of cash payable in three equal installments of $2.5 million (subject to certain adjustments). During year ended December 31, 2013, we made the final deferred purchase payment related to the Merger of $2.5 million leaving no remaining amounts outstanding under this agreement.

In March 2010, we entered into an acquisition and investment agreement with DFR Holdings and CNCIM pursuant to which we agreed to acquire all of the equity interests in CNCIM from DFR Holdings. The consideration for the CNCIM acquisition includes deferred purchase payments totaling $7.5 million in cash payable in five equal annual installments beginning in December 2010. During the year ended December 31, 2014, we paid our final installment of $1.5 million, leaving no amounts outstanding under this agreement.

Contingent Liabilities—In addition to the consideration paid in connection with the Merger, we were required to pay CIFC Parent a portion of incentive fees earned on six CLOs managed by CIFCAM (the "Legacy CIFC CLOs"). The terms of these payments were as follows: (i) the first $15.0 million of incentive fees received (which was fulfilled in 2013), (ii) 50% of any incentive fees in excess of $15.0 million in aggregate received from the Legacy CIFC CLOs by the combined company over ten years from April 13, 2011 (the "Merger Closing Date") and (iii) payments relating to the present value of any such incentive fees from the Legacy CIFC CLOs that remain payable to the combined company after the tenth anniversary of the Merger Closing Date.

During the years ended December 31, 2014 and 2013, we made total payments of $6.6 million and $12.5 million, respectively related to these contingent liabilities. As of December 31, 2014, there are no remaining payments under item (i) and we made cumulative payments of $13.1 million under item (ii) to date.

In addition, we also assumed contingent liabilities during the merger that primarily represent contingent consideration related to Legacy CIFC’s acquisition of CypressTree in December 2010. The assumed contingent liabilities are based on a fixed percentage of certain management fees from the CypressTree CLOs. These fixed percentages vary by CLO. From the Merger Closing Date to June 2013 the minimum fixed percentage was 55%, and effective July 2013, the minimum fixed percentage was 39%. During the years ended December 31, 2014 and 2013, we made payments of $0.6 million and $2.6 million, respectively, related to these contingent liabilities.
    
    

34


Long-Term Debt—The following table summarizes our long-term debt:

 
December 31, 2014
 
December 31, 2013
 
Carrying
Value
 
Current
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
Carrying
Value
 
Current
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
(In thousands)
 
 
 
(In years)
 
(In thousands)
 
 
 
(In years)
Recourse debt:
 

 
 

 
 
 
 
 
 
 
 
March Junior Subordinated Notes (1)
$
95,000

 
1.00
%
 
20.8
 
$
95,000

 
1.00
%
 
21.8
October Junior Subordinated Notes (2)
25,000

 
3.73
%
 
20.8
 
25,000

 
3.73
%
 
21.8
Total Subordinated Notes Debt
$
120,000

 
1.57
%
 
20.8