Fair Value of Financial Instruments

Fair values of financial instruments are based on estimates using quoted market prices, discounted cash flows, or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and the estimated timing and amount of future cash flows. Therefore, the estimates of fair value may differ substantially from amounts that ultimately may be realized or paid at settlement or maturity of the financial instruments and those differences may be material. Accordingly, the aggregate fair value amounts presented do not represent our underlying institutional value.

Limitations

Fair value of financial instruments are based on relevant market information and information about the financial instrument; they are subjective in nature and involve uncertainties, matters of judgment and, therefore, cannot be determined with ultimate precision. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular instrument. Changes in assumptions could significantly affect these estimates. Because the fair value is estimated as of each balance sheet date presented, the amounts that will actually be realized or paid in settlement of the instruments could be significantly different.

The following is a summary of carrying value and fair value of our financial instruments for each period presented:



	March 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In thousands)				(In thousands)
Finance Receivables, net⁽¹⁾	$	1,461,336	$	1,550,131	$	1,370,800	$	1,441,026
Dealer Finance Receivables - GO, net	74,753		74,753		40,956		40,956
Securitization Debt	569,884		588,176		677,118		702,031
Portfolio Term Residual Financing	100,000		100,000		25,000		25,000
Bank Term Financings	319,321		319,321		347,360		347,360
Portfolio Warehouse Facilities	145,000		145,000		57,200		57,200
Senior Secured Notes Payable	198,392		222,199		198,320		220,135
Revolving Inventory Facility	111,321		111,662		91,320		91,600
Mortgage Note Payable	12,397		11,149		12,454		11,200
Real Estate Facility	11,269		11,237		11,733		11,700


⁽¹⁾	^{Represents finance receivable principal balances, plus accrued interest, less the allowance for credit losses.}

Valuation methodologies

Finance receivables

The fair value of finance receivables was estimated by discounting future cash flows expected to be collected using current rates at which similar loans would be made to borrowers with similar credit ratings and the same remaining maturities. This discounted cash flow is estimated utilizing an internal valuation model, which uses a combination of market inputs (i.e. discount rates for similar and like transactions) and our own assumptions regarding credit losses, recoveries, and prepayment rates in our portfolio. We estimate the cash flow of the portfolio and the cash flow of our retained interests in securitization and bank term financing transactions in measuring total cash flow. These cash flows are developed on a leveraged basis since our finance receivable portfolio is financed by these debt instruments and are not separable transactions.

Dealer Finance Receivables - GO

The fair value of dealer finance receivables was estimated by discounting future cash flows expected to be collected utilizing an internal loss adjusted cash flow valuation model. The cash flow valuation model uses internally generated assumptions regarding credit losses, recoveries, and prepayment rates in our portfolio, and a market discount rate.

Securitization debt

At March 31, 2013 and December 31, 2012, the fair value of securitization debt was determined using a third-party quoted market price.

Portfolio term residual financing

The portfolio term residual financing was amended in December 2012; therefore, we believe the fair value of this debt approximates carrying value at March 31, 2013 and December 31, 2012.

Bank term financings

In November 2012, we executed a bank term financing with Wells Fargo. Because this financing was recently executed, we believe the fair value approximates carrying value at March 31, 2013 and December 31, 2012.

Portfolio warehouse facilities

The portfolio warehouse facilities are short term in nature and the interest rates adjust in conjunction with the lender’s cost of funds or 30-day LIBOR. The Deutsche Bank Warehouse Facility was renewed in December 2012. The Royal Bank of Scotland Warehouse Facility was renewed in March 2013. The Wells Fargo Warehouse Facility was executed in December 2011. Since the majority of the warehouse facilities were recently renewed or executed and contain a floating market rate of interest, we believe the fair value of these facilities approximate carrying value at March 31, 2013 and December 31, 2012.

Senior secured notes payable

The fair value of senior secured notes payable at March 31, 2013 and December 31, 2012 was determined using third-party quoted market prices.

Revolving inventory facility

At March 31, 2013 and December 31, 2012, the fair value of the inventory facility was determined using a third party discounted cash flow using market interest rates for this debt. Both periods utilize the December 31 analysis, as the market for these instruments is not considered volatile.

Mortgage note payable

At March 31, 2013, and December 31, 2012, the fair value of this note was determined using third-party market prices for similar commercial real estate mortgages. Both periods utilize the December 31 analysis, as the market for these instruments is not considered volatile.

Real estate facility

At March 31, 2013 and December 31, 2012, the fair value of the real estate facility was determined using a third-party discounted cash flow using market interest rates for this debt. Both periods utilize the December 31 analysis, as the market for these instruments is not considered volatile.