Borrowings

9 Months Ended

Sep. 30, 2011

Borrowings

Borrowings

Note 7. Borrowings

Certain information with respect to the Company’s borrowings as of September 30, 2011 is summarized in the following table (dollar amounts in thousands):

	Outstanding Borrowings		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Fair Value of Collateral(1)
CLO 2005-1 senior secured notes	$	728,103	0.58	%	2,035	$	784,552
CLO 2005-2 senior secured notes	766,706		0.63		2,249	869,978
CLO 2006-1 senior secured notes	683,265		0.68		2,521	875,346
CLO 2007-1 senior secured notes	2,075,040		0.84		3,515	2,377,971
CLO 2007-1 junior secured notes(2)	61,491		—		3,515	70,468
CLO 2007-A senior secured notes	831,185		1.20		2,207	909,562
CLO 2007-A junior secured notes(3)	10,821		—		2,207	11,841
CLO 2011-1 senior debt	439,409		1.60		2,511	542,361
Total collateralized loan obligation secured debt	5,596,020					6,442,079
CLO 2007-1 junior secured notes to affiliates(4)	300,396		—		3,515	342,382
CLO 2007-A junior secured notes to affiliates(5)	65,452		—		2,207	71,624
Total collateralized loan obligation junior secured notes to affiliates	365,848					414,006
Senior secured credit facility	—		3.62		946	—
Asset-based borrowing facility(6)	38,300		2.59		1,497	88,769
Total credit facilities	38,300					88,769
7.0% Convertible senior notes	135,437		7.00		289	—
7.5% Convertible senior notes	164,440		7.50		1,934	—
Junior subordinated notes	283,517		5.40		9,170	—
Total borrowings	$	6,583,562				$	6,944,854

(1) Collateral for borrowings consists of corporate loans, securities available-for-sale and equity investments, at estimated fair value.

(2) CLO 2007-1 junior secured notes consist of $55.7 million of mezzanine notes with a weighted average borrowing rate of 3.6% and $5.8 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-1.

(3) CLO 2007-A junior secured notes consist of $6.2 million of mezzanine notes with a weighted average borrowing rate of 6.9% and $4.6 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-A.

(4) CLO 2007-1 junior secured notes to affiliates consist of $170.1 million of mezzanine notes with a weighted average borrowing rate of 5.1% and $130.3 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-1.

(5) CLO 2007-A junior secured notes to affiliates consist of $55.0 million of mezzanine notes with a weighted average borrowing rate of 6.4% and $10.5 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-A.

(6) Collateral for borrowings consists of oil and gas assets purchased for an aggregate purchase price of approximately $89.1 million, whereby no impairment was deemed to exist. These oil and gas assets are included in other assets in the condensed consolidated balance sheets at carrying amount.

Certain information with respect to the Company’s borrowings as of December 31, 2010 is summarized in the following table (dollar amounts in thousands):

	Outstanding Borrowings		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity (in days)	Fair Value of Collateral(1)
CLO 2005-1 senior secured notes	$	833,220	0.61	%	2,308	$	898,017
CLO 2005-2 senior secured notes	801,323		0.60		2,522	887,573
CLO 2006-1 senior secured notes	683,265		0.66		2,794	845,342
CLO 2007-1 senior secured notes	2,075,040		0.84		3,788	2,452,442
CLO 2007-1 junior secured notes(2)	61,504		—		3,788	72,689
CLO 2007-A senior secured notes	1,165,099		1.18		2,480	1,218,688
CLO 2007-A junior secured notes(3)	10,821		—		2,480	11,318
Total collateralized loan obligation secured debt	5,630,272					6,386,069
CLO 2007-1 junior secured notes to affiliates(4)	300,672		—		3,788	353,430
CLO 2007-A junior secured notes to affiliates(5)	65,452		—		2,480	68,462
Total collateralized loan obligation junior secured notes to affiliates	366,124					421,892
Senior secured credit facility	—		3.51		1,219	—
Asset-based borrowing facility(6)	18,400		2.76		1,770	32,760
Total credit facilities	18,400					32,760
7.0% Convertible senior notes	180,577		7.00		562	—
7.5% Convertible senior notes	163,565		7.50		2,207	—
Junior subordinated notes	283,517		5.42		9,443	—
Total borrowings	$	6,642,455				$	6,840,721

(1) Collateral for borrowings consists of corporate loans, securities available-for-sale, and equity investments, at estimated fair value.

(2) CLO 2007-1 junior secured notes consist of $55.7 million of mezzanine notes with a weighted average borrowing rate of 3.6% and $5.8 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-1.

(3) CLO 2007-A junior secured notes consist of $6.2 million of mezzanine notes with a weighted average borrowing rate of 7.0% and $4.6 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-A.

(4) CLO 2007-1 junior secured notes to affiliates consist of $170.4 million of mezzanine notes with a weighted average borrowing rate of 5.1% and $130.3 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-1.

(5) CLO 2007-A junior secured notes to affiliates consist of $55.0 million of mezzanine notes with a weighted average borrowing rate of 6.4% and $10.5 million of subordinated notes that do not have a contractual coupon rate, but instead receive a pro rata amount of the net distributions from CLO 2007-A.

(6) Collateral for borrowings consists of oil and gas assets purchased during the fourth quarter of 2010 for an aggregate purchase price of approximately $32.8 million, whereby no impairment was deemed to exist. These oil and gas assets are included in other assets in the condensed consolidated balance sheets.

CLO Debt

On March 31, 2011, the Company closed CLO 2011-1, a $400.0 million secured financing transaction secured by the assets held in CLO 2011-1. At closing, the Company entered into a senior loan agreement (the “CLO 2011-1 Agreement”) through which CLO 2011-1 was able to borrow up to $300.0 million through a non-recourse loan secured by the assets held in CLO 2011-1. On July 6, 2011, the Company amended the CLO 2011-1 Agreement to upsize the transaction to $600.0 million, whereby CLO 2011-1 is able to borrow up to an additional $150.0 million, or total of $450.0 million. Under the amended CLO 2011-1 Agreement, the CLO 2011-1 senior loan matures on August 15, 2018 and borrowings under the CLO 2011-1 Agreement bear interest at a rate of the three-month London interbank offered rate (“LIBOR”) plus 1.35%.  As of September 30, 2011, the Company had $439.4 million of borrowings outstanding under the CLO 2011-1 Agreement.

The indentures governing the Company’s CLO transactions stipulate the reinvestment period during which the collateral manager, which is an affiliate of the Company’s Manager, can generally sell or buy assets at its discretion and can reinvest principal proceeds into new assets. CLO 2007-A ended its reinvestment period during the fourth quarter of 2010 and both CLO 2005-1 and CLO 2005-2 ended their reinvestment periods in the second quarter of 2011. As a result, principal proceeds from the assets held in each of these three transactions are generally used to amortize the outstanding balance of senior notes outstanding. During the three and nine months ended September 30, 2011, $253.1 million and $474.7 million, respectively, of original CLO 2007-A, CLO 2005-1 and CLO 2005-2 senior notes were repaid. CLO 2006-1 and CLO 2007-1 will end their respective reinvestment periods during August 2012 and May 2014, respectively. CLO 2011-1 does not have a reinvestment period and all principal proceeds from holdings in CLO 2011-1 will be used to amortize the transaction.

During 2010, in an open market auction, the Company purchased $10.3 million of mezzanine notes issued by CLO 2007-A for $5.5 million and $72.7 million of mezzanine and subordinate notes issued by CLO 2007-1 for $38.8 million, both of which were previously held by an affiliate of the Manager. These transactions resulted in the Company recording an aggregate gain on extinguishment of debt totaling $38.7 million during the nine months ended September 30, 2010.

Credit Facilities

Senior Secured Credit Facility

On May 3, 2010, the Company entered into a credit agreement for a four-year $210.0 million asset-based revolving credit facility (the “2014 Facility”), maturing on May 3, 2014, that is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified financial assets. The borrowing base is subject to certain caps and concentration limits customary for financings of this type. The Company may obtain additional commitments under the 2014 Facility so long as the aggregate amount of commitments at any time does not exceed $600.0 million. On May 5, 2010, the Company obtained additional commitments of $40.0 million, bringing the total amount of commitments under the 2014 Facility to $250.0 million.

The Company has the right to prepay loans under the 2014 Facility in whole or in part at any time. Loans under the 2014 Facility bear interest at a rate equal to LIBOR plus 3.25% per annum. The 2014 Facility contains customary covenants applicable to the Company, including a restriction from making distributions to holders of common shares in excess of 65% of the Company’s estimated annual taxable income.

As of September 30, 2011, the Company had no borrowings outstanding under the 2014 Facility.

Asset-Based Borrowing Facility

On November 5, 2010, the Company entered into a credit agreement for a five-year $49.7 million non-recourse, asset-based revolving credit facility (the “2015 Natural Resources Facility”), maturing on November 5, 2015, that is subject to, among other things, the terms of a borrowing base derived from the value of eligible specified oil and gas assets. The borrowing base is subject to certain caps and concentration limits customary for financings of this type. The Company has the right to prepay loans under the 2015 Natural Resources Facility in whole or in part at any time. Loans under the 2015 Natural Resources Facility bear interest at a rate equal to LIBOR plus a tiered applicable margin ranging from 1.75% to 2.75% per annum. The 2015 Natural Resources Facility contains customary covenants applicable to the Company.

On May 13, 2011, the Company entered into an amendment to the 2015 Natural Resources Facility, increasing the commitment from $49.7 million to $81.1 million.

As of September 30, 2011, the Company had $38.3 million of borrowings outstanding under the 2015 Natural Resources Facility. In addition, under the 2015 Natural Resources Facility, the Company had a letter of credit outstanding totaling $1.0 million.

As of September 30, 2011, the Company believes it was in compliance with the covenant requirements for both credit facilities.

Convertible Debt

On January 15, 2010, the Company issued $172.5 million of 7.5% convertible senior notes due January 15, 2017 (“7.5% Notes”). The 7.5% Notes bear interest at a rate of 7.5% per annum on the principal amount, accruing from January 15, 2010. Interest is payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2010. The 7.5% Notes will mature on January 15, 2017 unless previously redeemed, repurchased or converted in accordance with their terms prior to such date. Holders of the 7.5% Notes may convert their notes at the applicable conversion rate at any time prior to the close of business on the business day immediately preceding the stated maturity date subject to the Company’s right to terminate the conversion rights of the notes. The Company may satisfy its obligation with respect to the 7.5% Notes tendered for conversion by delivering to the holder either cash, common shares, no par value, issued by the Company or a combination thereof. The initial conversion rate for each $1,000 principal amount of 7.5% Notes was 122.2046 common shares, which is equivalent to an initial conversion price of approximately $8.18 per share. The conversion rate is adjusted under certain circumstances, including the occurrence of certain fundamental change transactions and the payment of a quarterly cash distribution in excess of $0.05 per share, but will not be adjusted for accrued and unpaid interest on the 7.5% Notes. As of September 30, 2011, the conversation rate for each $1,000 principal amount of 7.5% Notes was 130.0516 common shares.

In accordance with accounting for convertible debt instruments that may be settled in cash upon conversion, the Company separately accounted for the liability and equity components to reflect the nonconvertible debt borrowing rate. The Company determined that the equity component of the 7.5% Notes totaled $10.0 million and is included in paid-in-capital on the Company’s condensed consolidated balance sheet as of September 30, 2011 and December 31, 2010. The remaining liability component of $164.4 million and $163.6 million as of September 30, 2011 and December 31, 2010, respectively, which is included within convertible senior notes on the Company’s condensed consolidated balance sheet as of September 30, 2011 and December 31, 2010, is comprised of the principal $172.5 million less the unamortized debt discount of $8.1 million and $8.9 million, respectively. The total debt discount amortization recognized for the three and nine months ended September 30, 2011 was $0.3 million and $0.9 million, respectively. The total debt discount amortization recognized for the three and nine months ended September 30, 2010 was $0.3 million and $0.8 million, respectively. The debt discount will continue to be amortized at the effective interest rate of 8.6%. For the three and nine months ended September 30, 2011, the total interest expense recognized on the 7.5% Notes was $3.2 million and $9.7 million, respectively. For the three and nine months ended September 30, 2010, the total interest expense recognized on the 7.5% Notes was $3.2 million and $9.2 million, respectively.

On August 23, 2011, the Company repurchased $45.1 million par amount of its 7.0% convertible senior notes due July 15, 2012 (the “7.0% Notes”). This transaction resulted in the Company recording a loss of $1.7 million and a write-off of $0.1 million of unamortized debt issuance costs during the third quarter of 2011. As of September 30, 2011, the Company had committed to purchase an additional $1.2 million par amount of its 7.0% Notes. The 7.0% Notes are convertible into the Company’s common shares at a conversion price of $31.00. This conversion rate for each $1,000 principal amount of 7.0% Notes is 32.2581 of the Company’s common shares.

During the first quarter of 2010, the Company repurchased an aggregate $95.2 million par amount of the 7.0% Notes. These transactions resulted in the Company recording a gain of $1.3 million, which was partially offset by a write-off of $0.6 million of unamortized debt issuance costs during 2010.