MANAGEMENT AGREEMENT AND RELATED PARTY TRANSACTIONS

The Manager manages the Company’s day-to-day operations, subject to the direction and oversight of the Company’s board of directors. The Management Agreement expires on December 31 of each year, but is automatically renewed for a 1 year term each December 31 unless terminated upon the affirmative vote of at least two-thirds of the Company’s independent directors, or by a vote of the holders of a majority of the Company’s outstanding common shares, based upon (1) unsatisfactory performance by the Manager that is materially detrimental to the Company or (2) a determination that the management fee payable to the Manager is not fair, subject to the Manager’s right to prevent such a termination under this clause (2) by accepting a mutually acceptable reduction of management fees. The Manager must be provided 180 days prior notice of any such termination and will be paid a termination fee equal to four times the sum of the average annual base management fee and the average annual incentive fee for the two 12-month periods immediately preceding the date of termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination.

The Management Agreement contains certain provisions requiring the Company to indemnify the Manager with respect to all losses or damages arising from acts not constituting bad faith, willful misconduct, or gross negligence. The Company has evaluated the impact of these guarantees on its condensed consolidated financial statements and determined that they are not material.

The following table summarizes the components of related party management compensation on the Company’s condensed consolidated statements of operations, which are described in further detail below (amounts in thousands):



	Three months ended March 31, 2017		Three months ended March 31, 2016
Base management fees, net	$	4,444	$	1,029
CLO management fees	3,114		6,247
Incentive fees	—		—
Total related party management compensation	$	7,558	$	7,276

Base Management Fees

The Company pays its Manager a base management fee quarterly in arrears. During 2017 and 2016, certain related party fees received by affiliates of the Manager were credited to the Company via an offset to the base management fee (“Fee Credits”). Specifically, as described in further detail under “CLO Management Fees” below, a portion of the CLO management fees received by an affiliate of the Manager for certain of the Company’s CLOs were credited to the Company via an offset to the base management fee.

The table below summarizes the aggregate base management fees (amounts in thousands):



	Three months ended March 31, 2017			Three months ended March 31, 2016
Base management fees, gross	$	5,822		$	5,783
CLO management fees credit(1)	(1,378		)	(4,754		)
Total base management fees, net	$	4,444		$	1,029


(1)	See “CLO Management Fees” for further discussion.

CLO Management Fees

An affiliate of the Manager entered into separate management agreements with the respective investment vehicles for all of the Company’s Cash Flow CLOs pursuant to which it is entitled to receive fees for the services it performs as collateral manager for all of these CLOs, except for CLO 2011-1. The collateral manager has the option to waive the fees it earns for providing management services for the CLO.

Fees Charged and Fee Credits

The Company recorded management fees expense for the majority of its CLOs during both the three months ended March 31, 2017 and 2016. The Manager credited the Company for a portion of the CLO management fees received by an affiliate of the Manager from CLOs including CLO 2007-1, CLO 2012-1, CLO 9, CLO 10, CLO 11, CLO 13 and CLO 2016-1 via an offset to the base management fees payable to the Manager. As the Company owns less than 100% of the subordinated notes of these CLOs (with the remaining subordinated notes held by affiliated and unaffiliated third parties), the Company received a Fee Credit equal only to the Company’s pro rata share of the aggregate CLO management fees paid by these CLOs. Specifically, the amount of the reimbursement for each of these CLOs was calculated by taking the product of (x) the total CLO management fees received by an affiliate of the Manager during the period for such CLO multiplied by (y) the percentage of the subordinated notes of such CLO held by the Company. The remaining portion of the CLO management fees paid by each of these CLOs was not credited to the Company, but instead resulted in a dollar-for-dollar reduction in the interest expense paid by the Company to the third party holder of the CLO’s subordinated notes. Similarly, the Manager credited the Company the CLO management fees from CLOs including CLO 2013-1 and CLO 2013-2 based on the Company’s 100% ownership of the subordinated notes in the CLO.

The table below summarizes the aggregate CLO management fees, including the Fee Credits (amounts in thousands):



	Three months ended March 31, 2017		Three months ended March 31, 2016
Charged and retained CLO management fees(1)	$	1,736	$	1,493
CLO management fees credit	1,378		4,754
Total CLO management fees	$	3,114	$	6,247


(1)	Represents management fees incurred by the senior and subordinated note holders of a CLO, excluding the Fee Credits received by the Company based on its ownership percentage in the CLO.

Subordinated note holders in CLOs have the first risk of loss and conversely, the residual value upside of the transactions. When CLO management fees are paid by a CLO, the residual economic interests in the CLO transaction are reduced by an amount commensurate with the CLO management fees paid. The Company records any residual proceeds due to subordinated note holders as interest expense on the condensed consolidated statements of operations. Accordingly, the increase in CLO management fees is directly offset by a decrease in interest expense.

Incentive Fees

The Manager receives quarterly incentive compensation from the Company based on its achievement of specified levels of net income pursuant to the Management Agreement. The Manager agreed to waive incentive fees of $16.2 million and earned zero incentive fees for the three months ended March 31, 2017 and 2016, respectively.

Reimbursable General and Administrative Expenses

Certain general and administrative expenses are incurred by the Company’s Manager on its behalf that are reimbursable to the Manager pursuant to the Management Agreement. The Company incurred reimbursable general and administrative expenses to its Manager totaling $1.0 million for both the three months ended March 31, 2017 and 2016. Expenses incurred by the Manager and reimbursed by the Company are reflected in general, administrative and directors expenses on the condensed consolidated statements of operations.

Contributions and Distributions

The Company made certain cash distributions on its common shares, which are held by its Parent, totaling $53.4 million and $38.3 million during the three months ended March 31, 2017 and 2016, respectively. Separately, the Company made certain asset distributions in kind on its common shares as described further below.

During the three months ended March 31, 2017, certain assets were contributed from and distributed to the Parent, including additional capital account credits for the general partner interests in an alternative credit fund. The table below summarizes the estimated fair value of distributions at the time of transfer (amounts in thousands):



	Three months ended March 31, 2017
Contributions:
Interests in joint ventures and partnerships	$	17,621
Total contributions from Parent	$	17,621

Distributions:
Cash	$	(16,652	)
Total distributions to Parent	$	(16,652	)

Affiliated Investments

The Company has invested in corporate loans, debt securities and other investments of entities that are affiliates of the Manager. As of March 31, 2017, the aggregate par amount of these affiliated investments totaled $26.5 million, or less than 1% of the total investment portfolio, and consisted of 3 issuers. The total affiliated investments was comprised of $20.1 million of equity investments, $6.1 million of corporate loans and $0.3 million of corporate debt securities. Comparatively, as of December 31, 2016, the aggregate par amount of these affiliated investments totaled $20.4 million, or less than 1% of the total investment portfolio, and consisted of 2 issuers. The total affiliated investments was comprised of $20.1 million of equity investments and $0.3 million of corporate debt securities

In addition, the Company has invested in certain joint ventures and partnerships alongside affiliates of the Manager. As of March 31, 2017 and December 31, 2016, the estimated fair value of these interests in joint ventures and partnerships totaled $724.8 million and $680.5 million, respectively.