Fair Value Measurement

6 Months Ended

Jun. 30, 2012

Fair Value Measurement [Abstract]

Fair Value Measurement

Note 3 — Fair Value Measurement

The following tables set forth the Company’s financial assets and liabilities measured at fair value by hierarchy level:

	Fair Value at June 30, 2012
(Amounts in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Available-for-sale investments (substantially restricted):
United States government agencies	$	—	$	8,970	$	—	$	8,970
Residential mortgage-backed securities - agencies		—		49,614		—		49,614
Other asset-backed securities		—		—		26,697		26,697
Investment related to deferred compensation trust		8,327		—		—		8,327
Forward contracts		—		1,423		—		1,423
Total financial assets	$	8,327	$	60,007	$	26,697	$	95,031
Financial liabilities:
Forward contracts	$	—	$	214	$	—	$	214
	Fair Value at December 31, 2011
(Amounts in thousands)	Level 1		Level 2		Level 3		Total
Financial assets:
Available-for-sale investments (substantially restricted):
United States government agencies	$	—	$	8,827	$	—	$	8,827
Residential mortgage-backed securities - agencies		—		69,712		—		69,712
Other asset-backed securities		—		—		24,232		24,232
Investment related to deferred compensation trust		8,118		—		—		8,118
Forward contracts		—		399		—		399
Total financial assets	$	8,118	$	78,938	$	24,232	$	111,288
Financial liabilities:
Forward contracts	$	—	$	46	$	—	$	46

For other asset–backed securities, market quotes are generally not available. If available, the Company will utilize a fair value measurement from a pricing service. The pricing service utilizes a pricing model based on market observable data and indices, such as quotes for comparable securities, yield curves, default indices, interest rates and historical prepayment speeds. If a fair value measurement is not available from the pricing service, the Company will utilize a broker quote if available. Due to a general lack of transparency in the process that the brokers use to develop prices, most valuations that are based on brokers’ quotes are classified as Level 3. If no broker quote is available, or if such quote cannot be corroborated by market data or internal valuations, the Company will perform internal valuations utilizing externally developed cash flow models. These pricing models are based on market observable spreads and, when available, observable market indices. The pricing models also use inputs such as the rate of future prepayments and expected default rates on the principal, which are derived by the Company based on the characteristics of the underlying structure and historical prepayment speeds experienced at the interest rate levels projected for the underlying collateral. The pricing models for certain asset–backed securities also include significant non–observable inputs such as internally assessed credit ratings for non–rated securities, combined with externally provided credit spreads. Observability of market inputs to the valuation models used for pricing certain of the Company’s investments deteriorated with the disruption to the credit markets as overall liquidity and trading activity in these sectors has been substantially reduced. Accordingly, securities valued using a pricing model have consistently been classified as Level 3 financial instruments. Following is a summary of the unobservable inputs used in Other asset-backed securities classified as Level 3:

			June 30, 2012				December 31, 2011
(Amounts in thousands)	Unobservable Input	Pricing   Source	Market Value		Net Average Price		Market Value		Net Average Price
Alt-A	Price	Third-party pricing service	$	151	$	12.90	$	210	$	14.57
Home Equity	Price	Third-party pricing service		199		39.99		185		23.35
Bank Loans and Trust Preferred	Price	Broker		5		0.01		4		0.01
Direct Exposure to Subprime	Price	Third-party pricing service		38		0.89		61		0.86
Indirect Exposure - High Grade	Discount margin	Manual		3,849		3.2		3,776		3.14
Indirect Exposure - Mezzanine	Price	Broker		15,671		6.95		13,010		5.63
Other	Discount margin	Manual		6,784		36.41		6,986		37.5
Total			$	26,697	$	6.16	$	24,232	$	5.49

The table below provides a roll-forward of the “Other asset-backed securities,” the only financial assets classified in Level 3, which are measured at fair value on a recurring basis, for the three and six months ended June 30, 2012 and 2011:

	Three Months Ended June 30,						Six Months Ended June 30,
(Amounts in thousands)	2012			2011			2012			2011
Beginning balance	$	25,397		$	26,340		$	24,232		$	23,710
Principal paydowns		(70	)		(94	)		(134	)		(504	)
Other-than-temporary impairments		—			(4	)		—			(4	)
Unrealized gains - instruments still held at the reporting date		1,657			5,436			3,707			9,529
Unrealized losses - instruments still held at the reporting date		(287	)		(2,004	)		(1,108	)		(3,057	)
Ending balance	$	26,697		$	29,674		$	26,697		$	29,674

Realized gains and losses and other-than-temporary impairments related to these available-for-sale investment securities are reported in the “Net securities gains” line in the Consolidated Statements of (Loss) Income while unrealized gains and losses related to available-for-sale securities are recorded in accumulated other comprehensive loss in stockholders’ deficit.

Assets and liabilities that are disclosed at fair value

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The fair value of debt is estimated using market quotations, where available, credit ratings, observable market indices and other market data (Level 2). As of June 30, 2012, the fair value of the senior secured facility is $479.1 million compared to the carrying value of $485.4 million. As of June 30, 2012, the fair value of the Company’s second lien notes is estimated at $337.2 million compared to a carrying value of $325.0 million. As of December 31, 2011, the fair value of the senior secured facility was $479.8 million compared to the carrying value of $489.6 million. As of December 31, 2011 the fair value of the Company’s second lien notes was estimated at $335.6 million compared to a carrying value of $325.0 million.