FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2017

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 on a recurring basis as of March 31, 2017 (amounts in thousands):




	As of March 31, 2017				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	$	1,253,809	$	1,253,809	$	1,253,809	$	—	$	—
Liabilities:
Senior notes	490,753		485,421		117,576		—		367,845
Junior subordinated notes	234,979		200,793		—		—		200,793




	As of December 31, 2016				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	$	1,139,549	$	1,139,549	$	1,139,549	$	—	$	—
Liabilities:
Senior notes	123,008		116,699		116,699		—		—
Junior subordinated notes	250,154		210,084		—		—		210,084

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, 2017, 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, 2017
Assets:
Securities:
Corporate debt securities	$	—	$	4,993	$	227,198	$	232,191
Residential mortgage-backed securities	—		—		39,286		39,286
Total securities	—		4,993		266,484		271,477
Loans	—		3,123,297		125,088		3,248,385
Equity investments, at estimated fair value	43,568		—		131,125		174,693
Interests in joint ventures and partnerships, at estimated fair value	—		—		841,733		841,733
Derivatives:
Foreign exchange forward contracts and options	—		34,727		854		35,581
Warrants	—		—		1,699		1,699
Options	—		—		1,464		1,464
Total derivatives	—		34,727		4,017		38,744
Total	$	43,568	$	3,163,017	$	1,368,447	$	4,575,032
Liabilities:
Collateralized loan obligation secured notes	$	—	$	2,992,893	$	—	$	2,992,893
Collateralized loan obligation junior secured notes to affiliates	—		92,220		—		92,220
Derivatives:
Interest rate swaps	—		25,506		—		25,506
Foreign exchange forward contracts and options	—		4,241		38		4,279
Total derivatives	—		29,747		38		29,785
Total	$	—	$	3,114,860	$	38	$	3,114,898

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2016, 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, 2016
Assets:
Securities:
Corporate debt securities	$	—	$	13,337	$	175,206	$	188,543
Residential mortgage-backed securities	—		—		40,663		40,663
Total securities	—		13,337		215,869		229,206
Corporate loans	—		3,176,070		129,194		3,305,264
Equity investments, at estimated fair value	36,353		—		132,305		168,658
Interests in joint ventures and partnerships, at estimated fair value	—		—		793,996		793,996
Derivatives:							0
Foreign exchange forward contracts and options	—		41,636		2,282		43,918
Options	—		—		1,001		1,001
Warrants					1,528		1,528
Total derivatives	—		41,636		4,811		46,447
Total	$	36,353	$	3,231,043	$	1,276,175	$	4,543,571
Liabilities:
Collateralized loan obligation secured notes	$	—	$	3,177,548	$	—	$	3,177,548
Derivatives:
Interest rate swaps	—		27,263		—		27,263
Foreign exchange forward contracts and options	—		4,152		1,290		5,442
Total derivatives	—		31,415		1,290		32,705
Total	$	—	$	3,208,963	$	1,290	$	3,210,253

Schedule of additional information about assets and liabilities, including derivatives, that are measured at fair value on a recurring basis

The following table presents additional information about assets and liabilities, 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, 2017 (amounts in thousands):



	Assets
	Corporate Debt Securities			Residential Mortgage- Backed Securities			Corporate Loans			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Foreign Exchange Options, Net			Warrants		Options
Beginning balance as of January 1, 2017	$	175,206		$	40,663		$	129,194		$	132,305		$	793,996		$	992		$	1,528	$	1,001
Total gains or losses (for the period):
Included in earnings(1)	85,978			1,164			2,940			(1,501		)	35,963			(176		)	171		463
Transfers into Level 3	—			—			—			—			—			—			—		—
Transfers out of Level 3 (2)	—			—			(9,565		)	—			—			—			—		—
Purchases	—			—			6,072			321			18,320			—			—		—
Sales	(8,956		)	—			(332		)	—			—			—			—		—
Settlements	(25,030		)	(2,541		)	(3,221		)	—			(6,546		)	—			—		—
Ending balance as of March 31, 2017	$	227,198		$	39,286		$	125,088		$	131,125		$	841,733		$	816		$	1,699	$	1,464
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	84,841		$	1,164		$	2,940		$	(1,501	)	$	35,963		$	(633	)	$	171	$	463


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


(2)	Corporate loans were transferred out of Level 3 because observable market data became available.

The following table presents additional information about assets and liabilities, 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, 2016 (amounts in thousands):



	Assets
	Corporate Debt Securities			Residential Mortgage- Backed Securities			Corporate Loans			Equity Investments, at Estimated Fair Value			Interests in Joint Ventures and Partnerships			Warrants			Options
Beginning balance as of January 1, 2016	$	194,986		$	49,621		$	298,734		$	146,648		$	888,408		$	2,887		$	95
Total gains or losses (for the period):
Included in earnings(1)	(44,882		)	332			(6,827		)	(8,085		)	(80,695		)	(1,046		)	403
Transfers into Level 3	—			—			—			—			—			—			—
Transfers out of Level 3	—			—			—			—			—			—			—
Purchases	—			—			2,306			—			14,067			—			—
Sales	—			—			—			—			—			—			—
Settlements	(36		)	(2,239		)	2,769			—			(73,451		)	—			—
Ending balance as of March 31, 2016	$	150,068		$	47,714		$	296,982		$	138,563		$	748,329		$	1,841		$	498
Change in unrealized gains or losses for the period included in earnings for assets held at the end of the reporting period(1)	$	(44,882	)	$	329		$	(6,827	)	$	(8,085	)	$	(80,695	)	$	(1,046	)	$	403


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

Summary of valuation techniques used for assets and liabilities, 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, 2017 (dollar amounts in thousands):

Balance as

of March 31, 2017

Valuation

Techniques(1)

Unobservable

Inputs(2)

Weighted

Average(3)

Range

Impact to

Valuation

from an

Increase in

Input(4)

Assets:

Corporate debt securities

227,198

Yield analysis

Yield

22%

5% - 23%

Decrease

Net leverage

30x

15x-31x

Decrease

EBITDA multiple

37x

0x - 39x

Increase

Discount margin

1151 bps

1100 -1600 bps

Decrease

Residential mortgage – backed securities

39,286

Discounted cash flows

Probability of default

0% - 3%

Decrease

Loss severity

43%

35% - 50%

Decrease

Constant prepayment rate

16%

12% - 20%

)

Corporate loans

125,088

Inputs to market comparables, discounted cash flow and yield analysis

Weight ascribed to market comparables

0% - 50%

)

Weight ascribed to discounted cash flows

0% - 50%

)

Weight ascribed to yield analysis

98%

0% - 100%

)

Yield Analysis

Yield

12%

10% -15%

Decrease

Net leverage

15x

5x - 91x

Decrease

EBITDA multiple

10x

7x - 23x

Increase

Market comparables

LTM EBITDA multiple

Increase

Forward EBITDA multiple

Increase

Discounted Cash flows

Weighted average cost of capital

15%

Decrease

LTM EBITDA exit multiple

Increase

Black Scholes Options Pricing Model

Risk-Free Rate

Increase

Volatility

28%

Decrease

Equity investments, at estimated fair value(6)

131,125

Inputs to both market comparables and discounted cash flow

Illiquidity discount

11%

0% - 15%

Decrease

Weight ascribed to market comparables

47%

0% - 100%

)

Weight ascribed to discounted cash flows

53%

0% - 100%

)

Market comparables

LTM EBITDA multiple

11x

0x - 16x

Increase

Forward EBITDA multiple

10x

0x - 14x

Increase

Discounted cash flows

Weighted average cost of capital

7% - 15%

Decrease

LTM EBITDA exit multiple

5x - 10x

Increase

Interests in joint ventures and partnerships(10)

841,733

Inputs to market comparables, discounted cash flow and yield analysis

Weight ascribed to market comparables

25%

0% - 100%

)

Weight ascribed to discounted cash flows

43%

0% - 100%

)

Weight ascribed to yield analysis

32%

0% - 100%

)

Market comparables

LTM EBITDA multiple

Increase

Forward EBITDA multiple

Increase

Capitalization rate

4% - 12%

Decrease

Discounted cash flows

Weighted average cost of capital

10%

6% - 20%

Decrease

Average price per BOE(11)

$19.92

$18.35-$22.35

Increase

Yield analysis

Yield

27%

Decrease

Net Leverage

Decrease

EBITDA multiple

Increase

Foreign exchange options, net

816

Option pricing model

Forward and spot rates

13,309

(12

)

Options(13)

1,464

Inputs to both market comparables and discounted cash flow

Illiquidity discount

10%

Decrease

Weight ascribed to market comparables

50%

)

Weight ascribed to discounted cash flows

50%

)

Market comparables

LTM EBITDA multiple

Increase

Forward EBITDA multiple

Increase

Discounted cash flows

Weighted average cost of capital

15%

Decrease

LTM EBITDA exit multiple

Increase

Black Scholes Options Pricing Model

Risk-Free Rate

Increase

Volatility

28%

Decrease

(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)	In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.


(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 increases and decreases 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 to equity investments, at estimated fair value, the Company seeks to take 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. Of the total equity investments, at estimated fair value, $15.2 million was valued solely using a market comparables technique and $19.9 million was valued solely using a discounted cash flow technique.

(7)

The directional change from an increase in the weight ascribed to the market comparables approach would increase the fair value of the Level 3 investments if the market comparables approach results in a higher valuation than the discounted cash flow or yield analysis approach. The opposite would be true if the market comparables approach results in a lower valuation than the discounted cash flow or yield analysis approach.

(8)

The directional change from an increase in the weight ascribed to the discounted cash flow approach would increase the fair value of the Level 3 investments if the discounted cash flow approach results in a higher valuation than the market comparables or yield analysis approach. The opposite would be true if the discounted cash flow approach results in a lower valuation than the market comparables or yield analysis approach.

(9)

The directional change from an increase in the weight ascribed to the yield analysis approach would increase the fair value of the Level 3 investments if the yield analysis approach results in a higher valuation than the market comparables or discounted cash flow approach. The opposite would be true if the yield analysis approach results in a lower valuation than the market comparables or discounted cash flow approach.

(10)

Inputs exclude $462.1 million of assets, comprised of an investment that was valued using an independent third party valuation firm and interests in an alternative credit fund that holds multiple investments, which are valued using Level 3 value methodologies similar to those shown for the corporate debt portfolio and equity investments. Of the total interest in joint ventures and partnerships, $47.1 million was valued solely using a discounted cash flow technique, while $8.8 million was valued solely using a market comparables technique and $26.9 million was valued solely using a yield analysis.

(11)

Natural resources assets with an estimated fair value of $87.2 million as of March 31, 2017 were valued using commodity prices. Commodity prices may be measured using a common volumetric equivalent where one barrel of oil equivalent (‘‘BOE’’) is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for these investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 24% liquids and 76% natural gas.


(12)	Inputs include forward rates for investments in Indian Rupees.


(13)	The total options were valued using 50% a discount cash flow technique and 50% a market comparables technique.

The table above excludes warrants of $1.7 million, comprised of equity-like securities in a company that were valued using an independent third party valuation firm primarily based on the agreement setting forth the terms of the warrant and public disclosures of the expected sale value.

The following table presents additional information about valuation techniques and inputs used for assets, including derivatives, that are measured at fair value and categorized within Level 3 as of December 31, 2016 (dollar amounts in thousands):

Balance as of
December 31, 2016

Valuation

Techniques(1)

Unobservable

Inputs(2)

Weighted

Average(3)

Range

Impact to

Valuation

from an

Increase in

Input(4)

Assets:

Corporate debt securities

175,206

Yield analysis

Yield

14%

5% - 15%

Decrease

Net leverage

7x-16x

Decrease

EBITDA multiple

0x - 9x

Increase

Discount margin

1105

1100-1150bps

Decrease

Market comparables

LTM EBITDA multiple

12x

Increase

Black Scholes Options Pricing Model

Risk-Free Rate

Increase

Volatility

85%

Decrease

Broker quotes

Offered quotes

102

101-103

Increase

Residential mortgage – backed securities

40,663

Discounted cash flows

Probability of default

0% - 3%

Decrease

Loss severity

43%

35% - 50%

Decrease

Constant prepayment rate

18%

12% - 23%

)

Corporate loans

129,194

Yield Analysis

Yield

13%

11% - 16%

Decrease

Net leverage

11x

5x - 82x

Decrease

EBITDA multiple

0x - 19x

Increase

Equity investments, at estimated fair value(6)

132,305

Inputs to market comparables and discounted cash flow

Illiquidity discount

5% - 15%

Decrease

Weight ascribed to market comparables

47%

0% - 100%

)

Weight ascribed to discounted cash flows

53%

0% - 100%

)

Market comparables

LTM EBITDA multiple

11x

0x - 14x

Increase

Forward EBITDA multiple

0x - 13x

Increase

Discounted cash flows

Weighted average cost of capital

7% - 14%

Decrease

LTM EBITDA exit multiple

7x - 10x

Increase

Interests in joint ventures and partnerships(10)

793,996

Inputs to both market comparables and discounted cash flow

Weight ascribed to market comparables

27%

0% - 100%

)

Weight ascribed to discounted cash flows

45%

0% - 100%

)

Weight ascribed to yield analysis

28%

0% - 100%

)

Market comparables

LTM EBITDA multiple

1x - 9x

Increase

Forward EBITDA multiple

Increase

Capitalization Rate

3% - 12%

Decrease

Discounted cash flows

Weighted average cost of capital

10%

6% - 20%

Decrease

Average price per BOE(11)

$20.26

$18.81 - $22.38

Increase

Yield analysis

Yield

19%

Decrease

Net leverage

Decrease

EBITDA multiple

Increase

Foreign exchange options, net

992

Option pricing model

Forward and spot rates

10,301

6 -13,550

(12

)

Options(13)

1,001

Inputs to both market comparables and discounted cash flow

Illiquidity discount

10%

Decrease

Weight ascribed to market comparables

50%

)

Weight ascribed to discounted cash flows

50%

)

Market comparables

LTM EBITDA multiple

Increase

Forward EBITDA multiple

Increase

Discounted cash flows

Weighted average cost of capital

15%

Decrease

LTM EBITDA exit multiple

Increase

(1)


(2)	In determining certain of these inputs, management evaluates a variety of factors including economic conditions, industry and market developments; market valuations of comparable companies; and company specific developments including exit strategies and realization opportunities.


(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 increases and decreases 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 to equity investments, at estimated fair value, the Company seeks to take 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. Of the total equity investments, at estimated fair value, $14.5 million was valued solely using using a market comparables technique and $20.0 million was valued solely using a discounted cash flow technique.

(7)

(8)

(9)

(10)

Inputs exclude $408.1 million of assets, comprised of an investment that was valued using an independent third party valuation firm and interests in alternative credit funds that holds multiple investments, which were valued suing Level 3 value methodologies similar to those shown for the corporate debt portfolio and equity investments. Of the total interest in joint ventures and partnerships, $43.5 million was valued solely using a discounted cash flow technique, while $9.8 million was valued solely using a market comparables technique and $24.4 million was valued solely using a yield analysis.

(11)

Natural resources assets with an estimated fair value of $107.3 million as of December 31, 2015 were valued using commodity prices. Commodity prices may be measured using a common volumetric equivalent where one barrel of oil equivalent (‘‘BOE’’) is determined using the ratio of six thousand cubic feet of natural gas to one barrel of oil, condensate or natural gas liquids. The price per BOE is provided to show the aggregate of all price inputs for these investments over a common volumetric equivalent although the valuations for specific investments may use price inputs specific to the asset for purposes of our valuations. The discounted cash flows include forecasted production of liquids (oil, condensate, and natural gas liquids) and natural gas with a forecasted revenue ratio of approximately 23% liquids and 77% natural gas.


(12)	Inputs include forward rates for investments in Chinese Yuan and Indian Rupees.


(13)	The total options were valued using 50% a discount cash flow technique and 50% a market comparables technique.