DERIVATIVE INSTRUMENTS

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS

10. DERIVATIVE INSTRUMENTS

The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of June 30, 2019 and December 31, 2018 ($ in thousands):

June 30, 2019

			Fair Value				Remaining Maturity (years)
Contract Type	Notional		Asset(1)		Liability(1)
Caps
1 Month LIBOR	$	69,571	$	—	$	—	0.86
Futures
5-year Swap	95,800		187		—		0.25
10-year Swap	175,900		343		—		0.25
5-year U.S. Treasury Note	2,900		6		—		0.25
Total futures	274,600		536		—
Total derivatives	$	344,171	$	536	$	—

(1)  Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.

December 31, 2018

			Fair Value				Remaining Maturity (years)
Contract Type	Notional		Asset(1)		Liability(1)
Caps
1MO LIBOR	$	69,571	$	—	$	—	1.35
Futures
5-year Swap	$	274,900	$	—	$	526	0.25
10-year Swap	227,700		—		436		0.25
5-year U.S. Treasury Note	6,800		—		13		0.25
Total futures	509,400		—		975
Total derivatives	$	578,971	$	—	$	975

(1)  Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.

The following table indicates the net realized gains (losses) and unrealized appreciation (depreciation) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 ($ in thousands):

	Three Months Ended June 30, 2019									Six Months Ended June 30, 2019
	Unrealized Gain/(Loss)			Realized Gain/(Loss)			Net Result from Derivative Transactions			Unrealized Gain/(Loss)		Realized Gain/(Loss)			Net Result from Derivative Transactions
Contract Type
Futures	$	(1,046	)	$	(14,361	)	$	(15,407	)	$	1,511	$	(27,894	)	$	(26,383	)
Credit Derivatives	66			(116		)	(50		)	—		(108		)	(108		)
Total	$	(980	)	$	(14,477	)	$	(15,457	)	$	1,511	$	(28,002	)	$	(26,491	)

	Three Months Ended June 30, 2018						Six Months Ended June 30, 2018
	Unrealized Gain/(Loss)		Realized Gain/(Loss)		Net Result from Derivative Transactions		Unrealized Gain/(Loss)		Realized Gain/(Loss)			Net Result from Derivative Transactions
Contract Type
Futures	$	568	$	6,513	$	7,081	$	888	$	20,885		$	21,773
Swaps	—		—		—		1,403		(848		)	555
Credit Derivatives	—		—		—		49		(337		)	(288		)
Total	$	568	$	6,513	$	7,081	$	2,340	$	19,700		$	22,040

The Company’s counterparties held $3.1 million and $5.0 million of cash margin as collateral for derivatives as of June 30, 2019 and December 31, 2018, respectively, which is included in restricted cash in the consolidated balance sheets.

Futures

Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a Futures Commission Merchant. Interest rate futures that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate futures change.

The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended their rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures.

Credit Risk-Related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision whereby, if the Company defaults on certain of its indebtedness, the Company could also be declared in default on its derivatives, resulting in an acceleration of payment under the derivatives. As of June 30, 2019 and December 31, 2018, the Company was in compliance with these requirements and not in default on its indebtedness. As of June 30, 2019 and December 31, 2018, there was no cash collateral held by the derivative counterparties for these derivatives, included in restricted cash in the consolidated statements of financial condition. No additional cash would be required to be posted if the acceleration of payment under the derivatives was triggered.