DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

DERIVATIVE INSTRUMENTS

The Company enters into derivative transactions in order to hedge its interest rate and foreign currency exposure to the effects of interest rate and foreign currency changes. Additionally, the Company enters into derivative transactions in the course of its portfolio management activities. The counterparties to the Company’s derivative agreements are major financial institutions with which the Company and its affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, the Company is potentially exposed to losses. The counterparties to the Company’s derivative agreements are major financial institutions and, as a result, the Company does not anticipate that any of the counterparties will fail to fulfill their obligations.

The table below summarizes the aggregate notional amount and estimated net fair value of the derivative instruments as of March 31, 2017 and December 31, 2016 (amounts in thousands):

	As of March 31, 2017						As of December 31, 2016
	Notional			Estimated Fair Value			Notional			Estimated Fair Value
Free-Standing Derivatives:
Interest rate swaps	$	141,000		$	(25,506	)	$	141,000		$	(27,263	)
Foreign exchange forward contracts and options	(409,485		)	31,302			(460,282		)	38,476
Common stock warrants	—			1,699			—			1,528
Options	—			1,464			—			1,001
Total				$	8,959					$	13,742

Free-Standing Derivatives

Free-standing derivatives are derivatives that the Company has entered into in conjunction with its investment and risk management activities, but for which the Company has not designated the derivative contract as a hedging instrument for accounting purposes. Such derivative contracts may include interest rate swaps and foreign exchange contracts and options. Free-standing derivatives may also include investment financing arrangements (total rate of return swaps) whereby the Company receives the sum of all interest, fees and any positive change in fair value amounts from a reference asset with a specified notional amount and pays interest on such notional amount plus any negative change in fair value amounts from such reference asset.

Gains and losses on free-standing derivatives are reported in net realized and unrealized gain (loss) on derivatives and foreign exchange in the condensed consolidated statements of operations. Unrealized gains (losses) represent the change in fair value of the derivative instruments and are noncash items.

Interest Rate Swaps

The Company uses interest rate swaps to hedge a portion of the interest rate risk associated with certain of its floating rate junior subordinated notes. The Company had also previously used interest rate swaps to hedge a portion of the interest rate risk associated with its CLOs. As of both March 31, 2017 and December 31, 2016, the Company had interest rate swaps with a notional amount of $141.0 million.

Foreign Exchange Derivatives

The Company holds certain positions that are denominated in a foreign currency, whereby movements in foreign currency exchange rates may impact earnings if the United States dollar significantly strengthens or weakens against foreign currencies. In an effort to minimize the effects of these fluctuations on earnings, the Company will from time to time enter into foreign exchange options or foreign exchange forward contracts related to the assets denominated in a foreign currency. As of March 31, 2017 and December 31, 2016, the net contractual notional balance of our foreign exchange options and forward contract liabilities totaled $409.5 million and $460.3 million, respectively, the majority of which related to certain of our foreign currency denominated assets.

Free-Standing Derivatives Gain (Loss)

The following table presents the amounts recorded in net realized and unrealized gain (loss) on derivatives and foreign exchange on the condensed consolidated statements of operations (amounts in thousands):

	Three Months Ended March 31, 2017						Three Months Ended March 31, 2016
	Realized gains (losses)		Unrealized gains (losses)		Total		Realized gains (losses)		Unrealized gains (losses)			Total
Interest rate swaps	$	—	$	1,715	$	1,715	$	—	$	(11,731	)	$	(11,731	)
Foreign exchange forward contracts and options(1)	2,181		1,182		3,363		11,212		(10,242		)	970
Common stock warrants	—		171		171		142		—			142
Options	—		462		462		—		403			403
Net realized and unrealized gains (losses)	$	2,181	$	3,530	$	5,711	$	11,354	$	(21,570	)	$	(10,216	)

(1) Net of foreign exchange remeasurement gain or loss on foreign denominated assets.

A master netting arrangement may allow each counterparty to net settle amounts owed between the Company and the counterparty as a result of multiple, separate derivative transactions. The Company has International Swaps and Derivatives Association ("ISDA") agreements or similar agreements with certain financial institutions which contain netting provisions. While these derivative instruments are eligible to be offset in accordance with applicable accounting guidance, the Company has elected to present derivative assets and liabilities on a gross basis in its condensed consolidated balance sheets. As of March 31, 2017, if the Company had elected to offset the asset and liability balances of its derivative instruments, the net positions would total the following with its respective financial institution counterparties: (i) $1.0 million net asset, net of $3.8 million collateral posted, (ii) $0.1 million net asset, net of $4.3 million collateral posted and (iii) $6.5 million net asset, including $9.9 million collateral held. Comparatively, as of December 31, 2016, if the Company had elected to offset the asset and liability balances of its derivative instruments, the net positions would total the following with its respective financial institution counterparties: (i) $2.6 million net asset, net of $3.4 million collateral posted, (ii) $1.0 million net asset, net of $8.0 million collateral posted and (iii) $7.5 million net asset, net of $11.3 million collateral held.