CLOs and Consolidated Variable Interest Entities

Telos Asset Management LLC (Telos), a subsidiary of the Company acquired in 2012, is a CLO manager of four CLOs; namely Telos CLO 2013-4, Ltd. (Telos 4), Telos CLO 2013-3, Ltd. (Telos 3), Telos CLO 2007‑2, Ltd. (Telos 2) and Telos CLO 2006-1, Ltd. (Telos 1). Prior to the acquisition of Tiptree Asset Management Company, LLC (TAMCO), the Company did not consolidate the then existing CLOs (Telos 1 and Telos 2) as it only held a residual interest which was recorded at fair value. The Company met the requirement to consolidate when it acquired the management rights of the CLOs.

The Company’s percentage ownerships of the subordinated notes of the CLOs as of March 31, 2014 are as follows: 7.11% (Telos 1), 95.45% (Telos 2), 0.00% (Telos 3) and 71.08% (Telos 4).

The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated debt obligations to finance the purchase of those investments. The investment activities of a CLO are governed by extensive investment guidelines, generally contained within a CLO’s “indenture” and other governing documents which limit, among other things, the CLO’s exposure to any single industry or obligor and provide that the CLO’s assets satisfy certain ratings requirements. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available.

The assets of each of the CLOs are held solely as collateral to satisfy the obligations of the CLOs. The Company does not own and has no right to the benefits from, nor does it bear the risks associated with, the assets held by the CLOs, beyond its direct investments in, and investment advisory fees generated from, the CLOs. If the Company were to liquidate, the assets of the CLOs would not be available to its general creditors, and as a result, the Company does not consider them assets available for the benefit of its investors. Additionally, the investors in the CLOs have no recourse to the Company’s general assets for the debt issued by the CLOs. Therefore, this debt is not the Company’s obligation. For this reason the difference between the fair value of the assets and liabilities at initial consolidation and subsequent results attributable to the Variable Interest Entities (“VIE”) subordinated noteholders is reflected as appropriated retained earnings.

As of March 31, 2014 and December 31, 2013, the Company’s maximum exposure to loss related to the CLOs is limited to its investment in the CLOs of $33,842 and $38,459, respectively, as well as the management fees receivable of $3,122 and $3,616 as of March 31, 2014 and December 31, 2013, respectively. Both the carrying values of the Company’s investment in the CLOs and management fees receivable are eliminated upon consolidation.

On August 6, 2013, Telos entered into a new $100,000 warehouse agreement with Telos 2013-5, Ltd. (Telos 5) that was amended on September 25, 2013 to increase the amount to $140,000. As of March 31, 2014, $192,940 is carried as investments in loans at fair value and $139,150 as debt on the consolidated balance sheet of Tiptree. The Company’s exposure in Telos 5 is limited to its equity investment of $45,000 , the $35,000 that had been in place since December 31, 2013 along with an additional $10,000 investment added during the three months ended March 31, 2014. Subsequent to March 31, 2014, Telos 5 closed (see Note 19 “Subsequent Events”)

The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s consolidated balance sheet as of the dates indicated. Subordinated debt obligations owned by Tiptree are not included in these tables as these amounts are eliminated in consolidation.



	March 31, 2014		December 31, 2013
Assets:
Restricted cash	$	108,897	$	67,604
Investment in loans	1,240,805		1,298,155
Investment in trading securities	20,166		19,366
Due from brokers	8,565		15,945
Accrued interest receivable	2,988		4,108
Deferred debt issuance costs	9,038		9,261
Other assets	140		177
Total assets of consolidated CLOs	$	1,390,599	$	1,414,616

Liabilities:
Notes payable	$	1,128,113	$	1,154,097
Due to brokers	30,760		11,479
Accrued interest payable	8,151		9,745
Other liabilities	301		285
Total liabilities of consolidated CLOs	$	1,167,325	$	1,175,606

The following table represents revenue and expenses of the consolidated CLOs included in the Company’s consolidated statements of operations for the periods indicated:



	Three months ended March 31,
	2014			2013
Income:
Realized loss loans	$	(6,955	)	$	(663	)
Unrealized gain loans	218			3,116
Interest income	18,723			14,111
Total income attributable to consolidated CLOs	$	11,986		$	16,564

Expenses:
Interest expense	$	13,462		$	9,611
Other expense	530			210
Total expenses attributable to consolidated CLOs	$	13,992		$	9,821

The tables below summarize the debt obligations of the CLOs consolidated by the Company as of March 31, 2014 and December 31, 2013:



	March 31, 2014
	Aggregate Principal Amount		Spread over three Months LIBOR		Unamortized Discount		Carrying Amount
Description
Telos 4 (maturity July 2024)
Class A	$	214,000	1.30	%	$	940	$	213,060
Class B	46,500		1.80	%	2,021		44,479
Class C	29,000		2.75	%	1,372		27,628
Class D	19,250		3.50	%	1,532		17,718
Class E	16,000		5.00	%	1,942		14,058
Class X	3,500		0.95	%	—		3,500
Subordinated	10,700		N/A		504		10,196

Telos 3 (maturity October 2024)
Class A	225,000		1.42	%	—		225,000
Class B	36,500		2.25	%	—		36,500
Class C	26,500		3.00	%	559		25,941
Class D	18,000		4.25	%	806		17,194
Class E	15,000		5.50	%	1,486		13,514
Class F	6,000		5.50	%	731		5,269
Subordinated	34,350		N/A		1,385		32,965

Telos 2 (maturity April 2022)
Class A-1	193,442		0.26	%	23,909		169,533
Class A-2	40,000		0.40	%	8,491		31,509
Class B	27,500		0.55	%	7,346		20,154
Class C	22,000		0.95	%	9,273		12,727
Class D	22,000		2.20	%	11,699		10,301
Class E	16,000		5.00	%	13,095		2,905
Subordinated	2,000		N/A		1,634		366

Telos 1 (maturity October 2021)
Class A-1D	35,017		0.27	%	4,210		30,807
Class A-1R	13,131		0.29	%	1,579		11,552
Class A-1T	48,149		0.27	%	5,790		42,359
Class A-2	60,000		0.40	%	12,426		47,574



Class B	27,200		0.49	%	7,083		20,117
Class C	22,000		0.85	%	9,048		12,952
Class D	22,000		1.70	%	11,324		10,676
Class E	16,000		4.25	%	12,772		3,228
Subordinated	40,223		N/A		25,892		14,331
	$	1,306,962			$	178,849	$	1,128,113



	December 31, 2013
	Aggregate Principal amount		Spread over three Months LIBOR		Unamortized Discount		Carrying Amount
Description
Telos 4 (maturity July 2024)
Class A	$	214,000	1.30	%	$	962	$	213,038
Class B	46,500		1.80	%	2,066		44,434
Class C	29,000		2.75	%	1,401		27,599
Class D	19,250		3.50	%	1,562		17,688
Class E	16,000		5.00	%	1,976		14,024
Class X	3,500		0.95	%	—		3,500
Subordinated	10,700		N/A		516		10,184

Telos 3 (maturity October 2024)
Class A	225,000		1.42	%	—		225,000
Class B	36,500		2.25	%	—		36,500
Class C	26,500		3.00	%	570		25,930
Class D	18,000		4.25	%	822		17,178
Class E	15,000		5.50	%	1,512		13,488
Class F	6,000		5.50	%	743		5,257
Subordinated	29,000		N/A		1,322		27,678

Telos 2 (maturity April 2022)
Class A-1	221,836		0.26	%	28,216		193,620
Class A-2	40,000		0.40	%	8,717		31,283
Class B	27,500		0.55	%	7,532		19,968
Class C	22,000		0.95	%	9,473		12,527
Class D	22,000		2.20	%	11,900		10,100
Class E	16,000		5.00	%	13,155		2,845
Subordinated	2,000		N/A		1,654		346

Telos 1 (maturity October 2021)



Class A-1D	39,270		0.27	%	4,867		34,403
Class A-1R	14,726		0.29	%	1,826		12,900
Class A-1T	53,996		0.27	%	6,693		47,303
Class A-2	60,000		0.40	%	12,781		47,219
Class B	27,200		0.49	%	7,277		19,923
Class C	22,000		0.85	%	9,261		12,739
Class D	22,000		1.70	%	11,548		10,452
Class E	16,000		4.25	%	12,861		3,139
Subordinated	40,223		N/A		26,391		13,832
	$	1,341,701			$	187,604	$	1,154,097