FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2013

FAIR VALUE OF FINANCIAL INSTRUMENTS

Schedule of carrying value and estimated fair value, as well as the respective hierarchy classifications, of the financial assets and liabilities that are not carried at estimated fair value

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value (excluding financial instruments which are carried at estimated fair value on a recurring basis) as of March 31, 2013 (amounts in thousands):

	As of March 31, 2013				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)
Assets:
Cash, restricted cash, and cash equivalents	$	1,435,264	$	1,435,264	$	1,435,264	$	—	$	—
Corporate loans, net of allowance for loan losses of $206,227 as of March 31, 2013(1)	5,687,728		5,800,465		—		5,360,906		439,559
Corporate loans held for sale(1)	107,395		130,720		—		107,356		23,364
Private equity investments, at cost(2)	405		2,115		—		—		2,115
Other assets	8,452		8,287		—		8,287		—
Liabilities:
Collateralized loan obligation secured debt	$	5,058,520	$	4,972,006	$	—	$	—	$	4,972,006
Collateralized loan obligation junior secured notes to affiliates	193,921		188,753		—		—		188,753
Credit facilities	46,089		46,089		—		—		46,089
Senior notes	362,202		429,157		429,157		—		—
Junior subordinated notes	283,517		134,351		—		—		134,351

(1) Corporate loans held for investment are carried at amortized cost net of allowance for loan losses, while corporate loans held for sale are carried at the lower of cost or estimated fair value. Refer to “Fair Value Measurements” below for a table presenting the corporate loans which are measured at fair value on a non-recurring basis.

(2) Included within other assets on the condensed consolidated balance sheets.

The following table presents the carrying value and estimated fair value, as well as the respective hierarchy classifications, of the Company’s financial assets and liabilities that are not carried at estimated fair value (excluding financial instruments which are carried at estimated fair value on a recurring basis) 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)
Assets:
Cash, restricted cash, and cash equivalents	$	1,134,002	$	1,134,002	$	1,134,002	$	—	$	—
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(1)	128,289		195,078		—		151,327		43,751
Private equity investments, at cost(2)	405		1,635		—		—		1,635
Other assets	17,148		16,777		—		16,439		338
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

(1) Corporate loans held for sale are carried at the lower of cost or estimated fair value. Refer to “Fair Value Measurements” below for a table presenting the corporate loans held for sale which are measured at fair value on a non-recurring basis.

(2) 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 assets and liabilities measured at fair value on a recurring basis as of March 31, 2013, 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 March 31, 2013
Assets:
Securities:
Securities available-for-sale	$	—	$	316,882	$	42,083	$	358,965
Other securities, at estimated fair value	—		52,966		3,237		56,203
Residential mortgage-backed securities	—		—		87,028		87,028
Total securities	—		369,848		132,348		502,196
Corporate loans, at estimated fair value	—		25,716		17,325		43,041
Equity investments, at estimated fair value	28,428		54,357		102,262		185,047
Derivatives:
Foreign exchange options	—		—		5,581		5,581
Commodity swaps	—		6,073		—		6,073
Common stock warrants	1,651		—		1,819		3,470
Foreign exchange forward contracts	—		6,514		—		6,514
Credit default swaps—protection purchased	—		56		—		56
Total derivatives	1,651		12,643		7,400		21,694
Other assets:
Interests in joint ventures and partnerships	—		—		169,931		169,931
Other assets	—		406		—		406
Total other assets	—		406		169,931		170,337
Total	$	30,079	$	462,970	$	429,266	$	922,315
Liabilities:
Securities sold, not yet purchased	$	1,235	$	—	$	—	$	1,235
Derivatives:
Interest rate swaps	—		79,445		—		79,445
Foreign exchange forward contracts	—		14,515		—		14,515
Credit default swaps—protection purchased	—		858		—		858
Commodity swaps	—		5,127		—		5,127
Foreign exchange options	—		—		231		231
Total derivatives	—		99,945		231		100,176
Total	$	1,235	$	99,945	$	231	$	101,411

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

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 March 31, 2013, 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 March 31, 2013
Corporate loans held for investment(1)	$	—	$	58,423	$	—	$	58,423
Corporate loans held for sale(2)	—		50,068		3,939		54,007
Total	$	—	$	108,491	$	3,939	$	112,430

(1) Represents loans held for investment whose carrying amount was based on estimated fair value. Of the total $58.4 million, $19.0 million was related to loans held in the Company’s allocated component of the allowance for loan losses and $39.4 million was related to loans modified in a TDR.

(2) As of March 31, 2013, total loans held for sale had a carrying value of $107.4 million of which $54.0 million was carried at estimated fair value and the remaining $53.4 million carried at amortized cost. Of the $54.0 million carried at estimated fair value, $50.1 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 $3.9 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, 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.

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 three months ended March 31, 2013 (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		Common Stock Warrants		Foreign Exchange Options, Net			Interests in Joint Ventures and Partnerships
Beginning balance as of January 1, 2013	$	42,221		$	2,909	$	83,842		$	16,141		$	97,746	$	1,574	$	8,277		$	142,477
Total gains or losses (for the period):
Included in earnings(1)	(117		)	328		5,721			(1,426		)	4,516		245		(2,927		)	6,679
Included in other comprehensive income	90			—		—			—			—		—		—			—
Transfers into Level 3(2)	—			—		—			—			—		—		—			—
Transfers out of Level 3(2)	—			—		—			—			—		—		—			—
Purchases	—			—		—			3,073			—		—		—			22,812
Sales	—			—		—			—			—		—		—			—
Settlements	(111		)	—		(2,535		)	(463		)	—		—		—			(2,037		)
Ending balance as of March 31, 2013	$	42,083		$	3,237	$	87,028		$	17,325		$	102,262	$	1,819	$	5,350		$	169,931
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	(117	)	$	328	$	12,088		$	(1,722	)	$	4,516	$	245	$	(2,927	)	$	6,679

(1) Amounts are included in net realized and unrealized gain on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations.

(2) There were no transfers between Level 1 or 2. 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 three months ended March 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			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)	550			(57		)	2,436			1,314		2,388		141		285		(1,240		)	109
Included in other comprehensive income	4,051			—			—			—		—		—		—		—			—
Transfers into Level 3(2)	—			—			—			—		—		—		—		—			—
Transfers out of Level 3(2)	—			—			—			—		—		—		—		—			—
Purchases	—			—			—			8,615		6,151		—		—		—			—
Sales	—			—			—			—		—		—		—		—			—
Settlements	(328		)	—			(1,552		)	—		—		—		—		—
Ending balance as of March 31, 2012	$	71,506		$	2,721		$	87,363		$	9,929	$	159,501	$	293	$	1,551	$	12,154		$	676
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	550		$	(57	)	$	7,798		$	1,314	$	2,388	$	141	$	285	$	(1,240	)	$	109

(1) Amounts are included in net realized and unrealized gain on investments or net realized and unrealized (loss) gain on derivatives and foreign exchange in the condensed consolidated statements of operations.

(2) There were no transfers between Level 1 or 2. 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 March 31, 2013 (dollar amounts in thousands):

	Balance as of March 31, 2013		Valuation Techniques(1)	Unobservable Inputs(2)	Range (Weighted Average)(3)	Impact to Valuation from an Increase in Input(4)
Assets:
Securities available-for-sale:	$	42,083	Yield Analysis	Yield	12% - 16% (13%)	Decrease
Corporate debt securities				Discount margin	1100bps - 1530bps	Decrease
					(930bps)
				Net leverage	2x - 5x (4x)	Decrease
				Illiquidity discount	3% (3%)	Decrease
				EBITDA multiple	7x - 8x (7x)	Increase
			Broker quotes	Offered quotes	75 - 105 (89)	Increase
Other securities, at estimated fair value	$	3,237	Yield Analysis	Yield	10% (10%)	Decrease
				Illiquidity discount	5% (5%)	Decrease
				EBITDA multiple	7x (7x)	Increase
Residential mortgage-backed securities	$	87,028	Discounted cash flows	Probability of default	0% - 21% (6%)	Decrease
				Loss severity	18% - 75% (32%)	Decrease
				Constant prepayment rate	1% - 35% (14%)	(5)
Corporate loans, at estimated fair value	$	17,325	Yield Analysis	Illiquidity discount	15% (15%)	Decrease
				Net leverage	5x - 6x (6x)	Decrease
				EBITDA multiple	9x - 10x (9x)	Increase
			Broker quotes	Offered quotes	8 - 30 (29)	Increase
Equity investments, at estimated fair value (6)	$	102,262	Market comparables	LTM EBITDA multiple	7x - 13x (11x)	Increase
				Forward EBITDA multiple	6x - 12x (10x)	Increase
			Discounted cash flows	Weighted average cost of capital	7% - 15% (10%)	Decrease
				LTM EBITDA exit multiple	7x - 13x (9x)	Increase
Common stock warrants	$	1,819	Market comparables	LTM EBITDA multiple	6x (6x)	Increase
				Forward EBITDA multiple	6x (6x)	Increase
				Illiquidity discount	15% (15%)	Decrease
			Discounted cash flows	Weighted average cost of capital	9% (9%)	Decrease
				LTM EBITDA exit multiple	8x (8x)	Increase
Foreign exchange options	$	5,581	Option pricing model	Forward and spot rates	0 - 2 (1)	(7)
Interests in joint ventures and partnerships	$	169,931	Discounted cash flows	Illiquidity discount	10% - 15% (10%)	Decrease
				Weighted average cost of capital	13% - 25% (18%)	Decrease
Liabilities:
Foreign exchange options	$	231	Option pricing model	Forward and spot rates	0.02 (0.02)	(7)

(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%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(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) When determining the illiquidity discount to be applied, the Company takes a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

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

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 (6)	$	97,746	Market comparables	LTM EBITDA multiple	7x - 12x (10x)	Increase
				Forward EBITDA multiple	6x - 12x (10x)	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)	(7)
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)	(7)

(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%. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected hold period and manner of realization for the investment. These factors can result in different weightings among the investments and in certain instances, may result in up to a 100% weighting to a single methodology. Broker quotes obtained for valuation purposes are reviewed by the Company through other valuation techniques.

(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) When determining the illiquidity discount to be applied, the Company takes a uniform approach across its portfolio and generally applies a minimum 5% discount to all private equity investments carried at estimated fair value. The Company then evaluates such investments to determine if factors exist that could make it more challenging to monetize the investment and, therefore, justify applying a higher illiquidity discount. These factors generally include the salability of the investment, whether the issuer is undergoing significant restructuring activity or similar factors, as well as characteristics about the issuer including its size and/or whether it is experiencing, or expected to experience, a significant decline in earnings. Depending on the applicability of these factors, the Company determines the amount of any incremental illiquidity discount to be applied above the 5% minimum, and during the time the Company holds the investment, the illiquidity discount may be increased or decreased, from time to time, based on changes to these factors. The amount of illiquidity discount applied at any time requires considerable judgment about what a market participant would consider and is based on the facts and circumstances of each individual investment. Accordingly, the illiquidity discount ultimately considered by a market participant upon the realization of any investment may be higher or lower than that estimated by the Company in its valuations.

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