FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

12 Months Ended

Dec. 31, 2012

FAIR VALUE OF FINANCIAL INSTRUMENTS

Schedule of carrying value and estimated fair value of financial instruments

The table below discloses the carrying value and the estimated fair value of the Company's financial instruments, as well as the respective hierarchy classifications, as of December 31, 2012 (amounts in thousands):

	As of December 31, 2012				Fair Value Hierarchy
	Carrying Amount		Estimated Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Financial Assets:
Cash, restricted cash, and cash equivalents	$	1,134,002	$	1,134,002	$	1,134,002	$	—	$	—
Securities available-for-sale		412,293		412,293		—		370,072		42,221
Other securities, at estimated fair value		37,385		37,385		—		34,476		2,909
Residential mortgage-backed securities		83,842		83,842		—		—		83,842
Corporate loans, net of allowance for loan losses of $223,472 as of December 31, 2012		5,783,689		5,831,218		—		5,203,763		627,455
Corporate loans held for sale		128,289		195,078		—		151,327		43,751
Corporate loans, at estimated fair value		35,879		35,879		—		19,738		16,141
Equity investments, at estimated fair value		161,621		161,621		23,790		40,085		97,746
Derivative assets		23,207		23,207		1,744		11,327		10,136
Private equity investments, at cost(1)		405		1,635		—		—		1,635
Interests in joint ventures and partnerships(1)		142,477		142,477		—		—		142,477
Other assets		17,148		16,777		—		16,439		338
Financial Liabilities:
Collateralized loan obligation secured debt	$	5,122,338	$	5,020,115	$	—	$	—	$	5,020,115
Collateralized loan obligation junior secured notes to affiliates		296,557		290,948		—		—		290,948
Credit facilities		107,789		107,789		—		—		107,789
Convertible senior notes		166,028		268,238		—		268,238		—
Senior notes		362,178		412,126		412,126		—		—
Junior subordinated notes		283,517		134,351		—		—		134,351
Securities sold, not yet purchased(2)		1,158		1,158		1,158		—		—
Derivative liabilities		117,270		117,270		—		116,985		285

(1)

Included within other assets on the consolidated balance sheets.

(2)

Included within accounts payable, accrued expenses and other liabilities on the consolidated balance sheets.

        The table below discloses the carrying value and the estimated fair value of the Company's financial instruments as of December 31, 2011 (amounts in thousands):

	As of December 31, 2011
	Carrying Amount		Estimated Fair Value
Financial Assets:
Cash, restricted cash, and cash equivalents	$	791,774	$	791,774
Securities available-for-sale		816,453		816,453
Other securities, at estimated fair value		19,671		19,671
Residential mortgage-backed securities		86,479		86,479
Corporate loans, net of allowance for loan losses of $191,407 as of December 31, 2011		6,122,891		5,999,771
Corporate loans held for sale		317,332		359,463
Corporate loans, at estimated fair value		3,176		3,176
Equity investments, at estimated fair value		189,845		189,845
Interest and principal receivable		62,124		62,124
Derivative assets		28,463		28,463
Private equity investments, at cost(1)		780		780
Financial Liabilities:
Collateralized loan obligation secured debt	$	5,540,037	$	5,200,534
Collateralized loan obligation junior secured notes to affiliates		365,848		283,914
Credit facilities		38,300		38,300
Convertible senior notes		299,830		368,502
Senior notes		250,676		261,834
Junior subordinated notes		283,517		262,962
Accounts payable, accrued expenses and other liabilities		23,424		23,424
Accrued interest payable		25,536		25,536
Accrued interest payable to affiliates		6,561		6,561
Related party payable		11,078		11,078
Securities sold, not yet purchased		1,256		1,256
Derivative liabilities		125,333		125,333

(1)

Included within other assets on the consolidated balance sheets.

Schedule of fair value of financial assets and liabilities measured on a recurring basis

The following table presents information about the Company's financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Balance as of December 31, 2012
Assets:
Securities:
Corporate debt securities	$	—		$	370,072		$	42,221		$	412,293
Other securities, at estimated fair value		—			34,476			2,909			37,385
Residential mortgage-backed securities		—			—			83,842			83,842
Total securities		—			404,548			128,972			533,520
Corporate loans, at estimated fair value		—			19,738			16,141			35,879
Equity investments, at estimated fair value		23,790			40,085			97,746			161,621
Derivatives:
Foreign exchange options		—			—			8,562			8,562
Commodity swaps		—			8,557			—			8,557
Common stock warrants		1,744			—			1,574			3,318
Foreign exchange forward contracts		—			2,615			—			2,615
Credit default swaps—protection sold		—			19			—			19
Credit default swaps—protection purchased		—			136			—			136
Total derivatives		1,744			11,327			10,136			23,207
Other assets:
Interests in joint ventures and partnerships		—			—			142,477			142,477
Other assets		—			319			—			319
Total other assets		—			319			142,477			142,796
Total	$	25,534		$	476,017		$	395,472		$	897,023
Liabilities:
Securities sold, not yet purchased	$	(1,158	)	$	—		$	—		$	(1,158	)
Derivatives:
Interest rate swaps		—			(90,618	)		—			(90,618	)
Foreign exchange forward contracts		—			(23,590	)		—			(23,590	)
Credit default swaps—protection purchased		—			(1,276	)		—			(1,276	)
Commodity swaps		—			(1,501	)		—			(1,501	)
Foreign exchange options		—			—			(285	)		(285	)
Total derivatives		—			(116,985	)		(285	)		(117,270	)
Total	$	(1,158	)	$	(116,985	)	$	(285	)	$	(118,428	)

        The following table presents information about the Company's financial assets and liabilities (including derivatives that are presented net) measured at fair value on a recurring basis as of December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2011
Assets:
Securities:
Securities available-for-sale:
Corporate debt securities	$	—		$	736,010		$	67,233	$	803,243
Common and preferred stock		11,902			1,308			—		13,210
Total securities available-for-sale		11,902			737,318			67,233		816,453
Other securities, at estimated fair value		—			16,893			2,778		19,671
Residential mortgage-backed securities		—			—			86,479		86,479
Total securities		11,902			754,211			156,490		922,603
Corporate loans, at estimated fair value		—			3,176			—		3,176
Equity investments, at estimated fair value		10,498			28,385			150,962		189,845
Derivatives:
Total rate of return swaps		—			—			152		152
Foreign exchange options, net		—			—			13,394		13,394
Commodity swaps, net		—			7,371			—		7,371
Common stock warrants		1,066			—			1,266		2,332
Total derivatives		1,066			7,371			14,812		23,249
Other assets		—			—			567		567
Total	$	23,466		$	793,143		$	322,831	$	1,139,440
Liabilities:
Securities sold, not yet purchased	$	(1,256	)	$	—		$	—	$	(1,256	)
Derivatives:
Interest rate swaps		—			(100,718	)		—		(100,718	)
Foreign exchange forward contracts, net		—			(12,224	)		—		(12,224	)
Credit default swaps—protection sold, net		—			(7,177	)		—		(7,177	)
Total derivatives		—			(120,119	)		—		(120,119	)
Total	$	(1,256	)	$	(120,119	)	$	—	$	(121,375	)

Schedule of fair value of assets measured on a non-recurring basis

                 The following table presents information about the Company's assets measured at fair value on a non-recurring basis as of December 31, 2012, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands). There were no liabilities measured at fair value on a non-recurring basis:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2012
Corporate loans held for sale(1)	$	—	$	49,521	$	24,347	$	73,868
Total	$	—	$	49,521	$	24,347	$	73,868

(1)

As of December 31, 2012, total loans held for sale had a carrying value of $128.3 million of which $73.9 million was carried at estimated fair value and the remaining $54.4 million carried at amortized cost. Of the $73.9 million carried at estimated fair value, $49.5 million was classified as Level 2 given that the assets were valued using quoted prices and other observable inputs in an active market. The remaining $24.3 million was classified as Level 3 given that the Company applied unobservable inputs based on the best available information to determine the estimated fair value.

        The following table presents information about the Company's assets measured at fair value on a non-recurring basis as of December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (amounts in thousands). There were no liabilities measured at fair value on a non-recurring basis:

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2011
Loans held for sale(1)	$	—	$	159,120	$	6,698	$	165,818
Private equity investments(2)		—		—		780		780
Total	$	—	$	159,120	$	7,478	$	166,598

(1)

As of December 31, 2011, total loans held for sale had a carrying value of $317.3 million of which $165.8 million was carried at estimated fair value and the remaining $151.5 million carried at amortized cost. Of the $165.8 million carried at estimated fair value, $159.1 million was classified as Level 2 given that the assets were valued using quoted prices and other observable inputs in an active market. The remaining $6.7 million was classified as Level 3 given that the Company applied unobservable inputs based on the best available information to determine the estimated fair value.

(2)

Represents private equity investments accounted for under the cost method that were classified as Level 3 when the assets were impaired and measured at estimated fair value using unobservable inputs.

Schedule of additional information of assets measured on level 3 basis

          The following table presents additional information about assets, including derivatives that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the year ended December 31, 2012 (amounts in thousands):

	Securities Available- For-Sale: Corporate Debt Securities			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Corporate Loans, at Estimated Fair Value		Equity Investments, at Estimated Fair Value			Total Rate of Return Swaps			Common Stock Warrants		Foreign Exchange Options, Net			Interest in Joint Ventures and Partnerships			Other Assets
Beginning balance as of January 1, 2012	$	67,233		$	2,778	$	86,479		$	—	$	150,962		$	152		$	1,266	$	13,394		$	—		$	567
Total gains or losses (for the period):
Included in earnings(1)		1,171			131		6,306			429		1,708			141			308		(5,117	)		4,391			342
Included in other comprehensive loss		12,202			—		—			—		—			—			—		—			—			—
Transfers into Level 3(2)		—			—		—			—		—			—			—		—			34,230			—
Transfers out of Level 3(2)		(2,721	)		—		—			—		(34,230	)		—			—		—			—			—
Purchases		—			—		—			15,056		18,060			—			—		—			104,728			—
Sales		(24,660	)		—		—			—		(4,365	)		—			—		—			—			(706	)
Settlements		(11,004	)		—		(8,943	)		656		(34,389	)		(293	)		—		—			(872	)		(203	)
Ending balance as of December 31, 2012	$	42,221		$	2,909	$	83,842		$	16,141	$	97,746		$	—		$	1,574	$	8,277		$	142,477		$	—
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	506		$	131	$	28,543		$	429	$	14,579		$	—		$	308	$	(5,117	)	$	4,391		$	—

(1)

Amounts are included in net realized and unrealized gain on investments, net realized and unrealized loss on derivatives and foreign exchange or net realized and unrealized gain (loss) on residential mortgage-backed securities, at estimated fair value in the consolidated statements of operations.

(2)

There were no transfers between Level 1 or 2. Securities available-for-sale: corporate debt securities were transferred out of Level 3 to Level 2 because observable market data became available. The remaining transfers into and out of Level 3 represented the reclassification of certain assets from equity investments, at estimated fair value to interests in joint ventures and partnerships. The Company's policy is to recognize transfers into and out of Level 3 at the end of the reporting period.

The following table presents additional information about assets, including derivatives, that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value, for the year ended December 31, 2011 (amounts in thousands):

	Securities Available- For-Sale: Corporate Debt Securities			Other Securities, at Estimated Fair Value		Residential Mortgage- Backed Securities			Equity Investments, at Estimated Fair Value			Total Rate of Return Swaps		Common Stock Warrants			Foreign Exchange Options, Net			Other Assets
Beginning balance as of January 1, 2011	$	83,097		$	—	$	93,929		$	84,932		$	104	$	3,453		$	14,791		$	—
Total gains or losses (for the period):
Included in earnings(1)		7,599			2,378		(457	)		27,878			48		(4	)		(1,397	)		10
Included in other comprehensive income		(18,836	)		—		—			—			—		—			—			—
Transfers into Level 3(2)		12,986			—		—			—			—		—			—			—
Transfers out of Level 3(2)		(17,332	)		—		—			(28,546	)		—		—			—			—
Purchases		23,903			400		—			87,761			—		—			—			—
Sales		(10,772	)		—		—			(30,121	)		—		—			—			—
Settlements		(13,412	)		—		(6,993	)		9,058			—		(2,183	)		—			557
Ending balance as of December 31, 2011	$	67,233		$	2,778	$	86,479		$	150,962		$	152	$	1,266		$	13,394		$	567
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	—		$	2,378	$	17,765		$	18,027		$	—	$	(1,448	)	$	(1,397	)	$	10

(1)

Amounts are included in net realized and unrealized gain (loss) on investments, net realized and unrealized (loss) gain on derivatives and foreign exchange or net realized and unrealized gain (loss) on residential mortgage-backed securities, residential mortgage loans, and residential mortgage-backed securities issued, carried at estimated fair value in the consolidated statements of operations.

(2)

Certain securities available-for-sale and equity investments, at estimated fair value, were transferred into and/or out of Level 3. Assets were transferred into Level 3 from Level 2 reflecting reduced transparency of prices for these financial instruments as a result of less trading activity. Assets were transferred out of Level 3 to Level 2 because observable market data became available. The Company's policy is to recognize transfers into and out of Level 3 at the end of the reporting period.

Summary of valuation techniques used for assets, measured at fair value and categorized within level 3

  The following table presents additional information about valuation techniques and inputs used for assets and liabilities, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2012 (dollar amounts in thousands):

	Balance as of December 31, 2012			Valuation Techniques(1)	Unobservable Inputs(2)	Range (Weighted Average)(3)	Impact to Valuation from an Increase in Input(4)
Assets:
Securities available-for-sale:	$	42,221		Yield Analysis	Yield	11% - 46% (16%)		Decrease
Corporate debt securities					Discount margin	1100bps - 4550bps		Decrease
						(1450bps)
					Net leverage	3x - 13x (6x)		Decrease
					Illiquidity discount	3% (3%)		Decrease
					EBITDA multiple	6x - 8x (7x)		Increase
				Broker quotes	Offered quotes	69 - 105 (88)		Increase
Other securities, at estimated fair value	$	2,909		Yield Analysis	Yield	10% (10%)		Decrease
Residential mortgage-backed securities	$	83,842		Discounted cash flows	Probability of default	0% - 21% (6%)		Decrease
					Loss severity	18% - 80% (30%)		Decrease
					Constant prepayment rate	1% - 35% (13%)			(5)
Corporate loans, at estimated fair value	$	16,141		Yield Analysis	Illiquidity discount	15% (15%)		Decrease
					Net leverage	8x - 9x (9x)		Decrease
					EBITDA multiple	9x - 10x (10x)		Increase
				Broker quotes	Offered quotes	8 - 40 (39)		Increase
Equity investments, at estimated fair value	$	97,746		Market comparables	LTM EBITDA multiple	7x - 12x (10x)		Increase
					Forward EBITDA multiple	6x - 12x (10x)		Increase
					Control premium	0% (0%)		Increase
				Discounted cash flows	Weighted average cost of capital	6% - 16% (10%)		Decrease
					LTM EBITDA exit multiple	7x - 12x (9x)		Increase
Common stock warrants	$	1,574		Market comparables	LTM EBITDA multiple	7x (7x)		Increase
					Forward EBITDA multiple	7x (7x)		Increase
					Illiquidity discount	15% (15%)		Decrease
				Discounted cash flows	Weighted average cost of capital	12% (12%)		Decrease
					LTM EBITDA exit multiple	7x (7x)		Increase
Foreign exchange options	$	8,562		Option pricing model	Forward and spot rates	0 - 2 (1)			(6)
Interests in joint ventures and partnerships	$	142,477		Discounted cash flows	Illiquidity discount	10% - 15% (10%)		Decrease
					Weighted average cost of capital	13% - 30% (18%)		Decrease
Liabilities:
Foreign exchange options	$	(285	)	Option pricing model	Forward and spot rates	0.02 (0.02)			(6)

(1)

For the assets that have more than one valuation technique, the Company may rely on the techniques individually or in aggregate based on a weight ascribed to each one ranging from 0-100%. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques. Equity investments, at estimated fair value are assigned a minimum 5% illiquidity discount, with the exception of certain investments related to natural resources.

(2)

The significant unobservable inputs used in the fair value measurement of the Company's assets and liabilities may include the last twelve months ("LTM") EBITDA multiple, weighted average cost of capital, discount margin, probability of default, loss severity and constant prepayment rate. In determining certain of these inputs, management evaluates a variety of factors including economic, industry and market trends and developments; market valuations of comparable companies; and company specific developments including potential exit strategies and realization opportunities. Significant increases or decreases in any of these inputs in isolation could result in significantly lower or higher fair value measurement.

(3)

Weighted average amounts are based on the estimated fair values.

(4)

Unless otherwise noted, this column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the unobservable input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

(5)

The impact of changes in prepayment speeds may have differing impacts depending on the seniority of the instrument. Generally, an increase in the constant prepayment speed will positively impact the overall valuation of traditional mortgage assets. In contrast, an increase in the constant prepayment rate will negatively impact the overall valuation of interest-only strips.

(6)

The directional change from an increase in forward and spot rates varies and is dependent on the specific option.