Borrowings

The following table presents borrowings as of June 30, 2014 and December 31, 2013 (dollars in thousands):



				June 30, 2014				December 31, 2013
	Recourse vs. Non-Recourse	Final Maturity	Contractual Interest Rate ⁽¹⁾	Principal Amount		Carrying Value		Principal Amount		Carrying Value
Securitization bonds payable
Securitization 2013-1	Non-recourse	Aug-29	LIBOR + 2.68%	$	382,241	$	382,076	$	382,700	$	382,250
Securitization 2012-1	Non-recourse	Aug-29	LIBOR + 1.77%	100,352		100,423		124,659		124,679
Subtotal securitization bonds payable				482,593		482,499		507,359		506,929

Mortgage notes payable
MF 1 Senior Mortgage	Non-recourse	Dec-23	4.84%	$	43,500	$	43,500	$	43,500	$	43,500
MF 2 Senior Mortgage	Non-recourse	Dec-23	4.94%	43,000		43,000		43,000		43,000
SH 1 Senior Mortgage	Non-recourse	Jan-24	5.15%	16,000		16,000		16,000		16,000
SH 2 Senior Mortgage ⁽²⁾	Non-recourse	Dec-20	5.27%	12,903		12,903		—		—
SH 3 Senior Mortgage	Non-recourse	Nov-16	5.84%	16,200		16,200		—		—
Subtotal mortgage notes payable				131,603		131,603		102,500		102,500

Credit facilities
Loan Facility 2	Partial Recourse⁽³⁾	Oct-17⁽⁴⁾	2.66%⁽⁵⁾	$	51,000	$	51,000	$	—	$	—
Loan Facility 3	Non-recourse	Jul-18 ⁽⁶⁾	5.66%⁽⁷⁾	9,000		9,000		16,638		16,638
Loan Facility 4	Partial Recourse⁽⁸⁾	Mar-18⁽⁹⁾	2.65%⁽¹⁰⁾	97,598		97,598		—		—
CMBS Facilities	Recourse	(11)	1.42%	11,685		11,685		11,685		11,685
Subtotal credit facilities				169,283		169,283		28,323		28,323
Grand Total				$	783,479	$	783,385	$	638,182	$	637,752

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(1)	Represents the weighted average as of June 30, 2014.


(2)	Represents two separate senior mortgage notes with a weighted average maturity of December 1, 2020 and weighted average interest rate of 5.27%.


(3)	Recourse solely with respect to 25.0% of the repurchase price for purchased assets with a lender debt yield equal to or greater than 10% at the time of financing plus 100% of the repurchase price for purchased assets with a lender debt yield less than 10% at the time of financing.


(4)	The next maturity date is October 18, 2014, with three, one-year extensions available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.


(5)	The contractual interest rate depends upon asset type and characteristic and ranges from one-month LIBOR plus 2.0% to 4.0%. The Company entered into this facility in the third quarter 2012.


(6)	The initial maturity date is July 30, 2015, with three, one-year extensions available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.


(7)	The contractual interest rate depends upon asset type and characteristic and ranges from one-month LIBOR plus 3.95% to 5.95%.


(8)	Recourse solely with respect to the greater of: (i) 25.0% of the financed amount of stabilized loans plus the financed amount of transitional loans; or (ii) the lesser of $25.0 million or the aggregate financed amount of all loans.


(9)	The initial maturity date is March 11, 2015, with three, one-year extensions available at the option of the Company, which may be exercised upon the satisfaction of certain customary conditions set forth in the governing documents.


(10)	The contractual interest rate depends upon asset type and characteristics and ranges from one-month LIBOR plus 2.5% to 3.0%. The Company entered into this facility in the first quarter 2013.


(11)	The maturity dates on the CMBS Facilities are dependent upon asset type and will typically range from two to three months.

The following table presents scheduled principal on borrowings, based on fully extended maturity as of June 30, 2014 (dollars in thousands):



	Total		Securitization Bonds Payable		Mortgage Notes Payable		Credit Facilities
July 1 to December 31, 2014	$	11,685	$	—	$	—	$	11,685
Years Ending December 31:
2015	—		—		—		—
2016	16,200		—		16,200		—
2017	51,000		—		—		51,000
2018	106,598		—		—		106,598
Thereafter	597,996		482,593		115,403		—
Total	$	783,479	$	482,593	$	131,603	$	169,283

Securitization Financing Transactions

The Company entered into two securitization financing transactions collectively referred to as Securitization Financing Transactions, collateralized by CRE debt investments originated by the Company and NorthStar Realty.

Securitization 2013-1

In August 2013, the Company entered into a $531.5 million securitization financing transaction (“Securitization 2013-1”). The Company initially contributed eight CRE debt investments with a $346.1 million aggregate principal amount. Subsequent to the closing of Securitization 2013-1, the Company contributed four additional CRE debt investments with a $105.5 million aggregate principal balance. NorthStar Realty transferred three senior loans with an aggregate principal amount of $79.1 million at cost to Securitization 2013-1. NorthStar Realty did not retain any interest in such senior loans. A total of $382.7 million of permanent, non-recourse, non-mark-to-market investment-grade securitization bonds were issued, representing an advance rate of 72.0% at a weighted average coupon of LIBOR plus 2.68%. The Company retained all of the below investment-grade securitization bonds, which the Company refers to as the Company’s retained equity interest in Securitization 2013-1. The Company used the proceeds to repay $222.7 million of borrowings on its term loan facilities. The collateral is used to service the interest payments on the investment-grade securitization bonds and the Company receives the excess cash flow on its retained equity interest. Securitization 2013-1 is considered a voting interest entity and since the Company has all of the controlling financial interest in Securitization 2013-1, the entity is consolidated by the Company.

Securitization 2012-1

In November 2012, the Company entered into a $351.4 million securitization financing transaction (“Securitization 2012-1”) collateralized by CRE debt investments originated by the Company and NorthStar Realty. The Company contributed nine CRE debt investments with a $199.2 million aggregate principal amount and retained an equity interest of $70.0 million. A total of $227.5 million of permanent, non-recourse, non-mark-to-market investment-grade securitization bonds were issued, of which $129.5 million financed the CRE debt investments contributed by the Company, representing an advance rate of 65.0% at a weighted average coupon of LIBOR plus 1.77%. The Company used the proceeds to repay $117.7 million of borrowings on its term loan facilities.

The retained equity interests of the Company and NorthStar Realty are held by a general partnership and both the Company and NorthStar Realty are the general partners (“Financing JV”). The Company evaluated both Securitization 2012-1 and the Financing JV under the VIE model and concluded that both entities were considered voting interest entities. The Company first determined that the retained equity interests and the issued senior beneficial interests represented variable interests in Securitization 2012-1. The Company then determined that the entities were not VIEs as the equity investors have the characteristics of a controlling financial interest and there is sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties. The power to direct the activities most significant to economic performance is through the special servicer who has the ability to manage the assets that are delinquent or in default. The investment grade bondholders have no control rights. Voting rights in both entities are in proportion to the economic interests. The retained equity interests in Securitization 2012-1 appoint the special servicer, providing the power to the equity investment at risk via voting rights held by the Financing JV. Furthermore, each of the partners retained the economic interests in its own loans as if the loans have been securitized on a stand-alone basis. All distributions on the retained equity interests occur after the third party bonds have received their contractual principal and interest payments. Shortfalls are borne by the retained interests and any losses will be absorbed first by the respective owner of such loans. Based on the preceding analysis, the Company concluded that the structures did not possess characteristics of a VIE and were voting interest entities.

An affiliate of the Sponsor was appointed special servicer of Securitization 2012-1 and is the designated member of the Financing JV. The entities are not consolidated due to the substantive participating and kick-out rights held by the Company. The transferred debt investments failed sale treatment under U.S. GAAP as the Company maintains effective control of its contributed assets. The Company records its respective CRE debt investments and securitization bonds payable on its consolidated balance sheets.

Term Loan Facilities

In February 2012, a subsidiary of the Company entered into a master repurchase and securities contract (“Loan Facility 1”) of $100.0 million to finance CRE first mortgage loans. In connection with Loan Facility 1, the Company, together with the Operating Partnership, entered into a guaranty agreement, under which the Company and the Operating Partnership guarantee certain of the obligations under Loan Facility 1. The Company terminated Loan Facility 1 in January 2014.

In July 2012, a subsidiary of the Company entered into a master repurchase agreement (“Loan Facility 2”) of $50.0 million to finance first mortgage loans and senior loan participations secured by commercial real estate. Loan Facility 2 was increased to $100.0 million in November 2012 and to $150.0 million in April 2013. In connection with Loan Facility 2, the Company agreed to guarantee certain obligations under Loan Facility 2 if the Company or an affiliate of the Company engages in certain customary bad acts. Loan Facility 2 and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. More specifically, the borrowing subsidiary of the Company must maintain at least $3.8 million and a maximum of $22.5 million in unrestricted cash, at all times during the term of Loan Facility 2.

In July 2012, a subsidiary of the Company entered into a credit and security agreement (“Loan Facility 3”) of $40.0 million on a non-recourse basis, subject to certain exceptions, to finance first mortgage loans and senior loan participations secured by commercial real estate. In connection with Loan Facility 3, the Operating Partnership agreed to guarantee interest payments and the customary obligations under Loan Facility 3 if either the Company or its affiliates engage in certain customary bad acts. In addition, the Operating Partnership pledged its interests in the Company’s borrowing subsidiary as collateral. Loan Facility 3 and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. More specifically, the Operating Partnership must maintain at least $3.8 million and as much as $7.5 million in unrestricted cash or other eligible investments at all times during the term of Loan Facility 3.

In March 2013, a subsidiary of the Company entered into a master repurchase agreement (“Loan Facility 4”) of $200.0 million to finance first mortgage loans and senior interests secured by commercial real estate. In connection with Loan Facility 4, the Company and the Operating Partnership entered into a guaranty agreement under which the Company and the Operating Partnership guaranty certain of the obligations under Loan Facility 4. Loan Facility 4 and related agreements contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of these types. More specifically, the Company must maintain at least $20.0 million in unrestricted cash or cash equivalents at all times during the term of Loan Facility 4. In addition, the Company has agreed to guarantee certain customary obligations under Loan Facility 4 if the Company or an affiliate of the Company engage in certain customary bad acts.

As of June 30, 2014, the Company had $251.7 million carrying value of CRE debt investments, financed with $157.6 million under three term loan facilities. The loan facilities are collectively herein referred to as Term Loan Facilities.

The Term Loan Facilities act as revolving loan facilities that can be paid down as assets are repaid or sold and re-drawn upon for new investments. As of June 30, 2014, the Company was in compliance with all of its financial covenants.

CMBS Facilities

In September 2012, the Company entered into two master repurchase agreements (“CMBS Facilities”) to finance CMBS investments. The CMBS Facilities contain representations, warranties, covenants, conditions precedent to funding, events of default and indemnities that are customary for agreements of this type. As of June 30, 2014, the Company had $17.7 million carrying value of CRE securities, financed with $11.7 million under its CMBS Facilities.