Indebtedness

6 Months Ended

Jun. 30, 2011

Indebtedness

Indebtedness

NOTE 6: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of June 30, 2011:

Description	Unpaid Principal Balance		Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	115,000	$	107,064		7.0	%	Apr. 2031
6.875% convertible senior notes (2)		38,813		38,943		6.9	%	Apr. 2027
Secured credit facilities		19,745		19,745		4.5	%	Dec. 2011
Senior secured notes		43,000		43,000		12.5	%	Apr. 2014
Loans payable on real estate		7,183		7,183		5.0	%	Sept. 2013
Junior subordinated notes, at fair value (3)		38,052		4,422		5.2	%	Oct. 2015 to Mar. 2035
Junior subordinated notes, at amortized cost		25,100		25,100		7.7	%	Apr. 2037
Total recourse indebtedness		286,893		245,457		7.4	%
Non-recourse indebtedness:
CDO notes payable, at amortized cost (4)(5)		1,337,987		1,337,987		0.6	%	2045 to 2046
CDO notes payable, at fair value (3)(4)(6)		1,134,643		140,619		0.9	%	2037 to 2038
Loans payable on real estate		92,144		92,162		5.9	%	Sept. 2011 to Mar. 2018
Total non-recourse indebtedness		2,564,774		1,570,768		0.9	%
Total indebtedness	$	2,851,667	$	1,816,225		1.6	%

(1) Our 7.0% convertible senior notes are redeemable, at par at the option of the holder, in April 2016, April 2021, and April 2026.

(2) Our 6.875% convertible senior notes are redeemable, at par at the option of the holder, in April 2012, April 2017, and April 2022.

(3) Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.

(4) Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(5) Collateralized by $1,774,581 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6) Collateralized by $1,279,735 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of June 30, 2011 was $875,526. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the loans payable on real estate that are guaranteed by us. Non-recourse indebtedness consists of indebtedness of consolidated VIEs (i.e. CDOs and other securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated VIE have no recourse to our general credit.

The current status or activity in our financing arrangements occurring as of or during the six-month period ended June 30, 2011 is as follows:

Recourse Indebtedness

6.875% convertible senior notes. During the six-month period ended June 30, 2011, we repurchased $104,800 in aggregate principal amount of our 6.875% Convertible Senior Notes due 2027, or the 6.875% convertible senior notes, for an aggregate purchase price of $103,213. As a result of these transactions, we recorded losses on extinguishment of debt of $1,033, net of deferred financing costs and unamortized discounts that were written off.

Our 6.875% convertible senior notes are redeemable, at the option of the holder, in April 2012. We expect to acquire, redeem, refinance or otherwise enter into transactions to satisfy our 6.875% convertible senior notes which may include any combination of payments of cash, issuances of our debt and/or equity securities, sales or exchanges of our assets or other methods.

7.0% convertible senior notes. On March 21, 2011, we issued and sold in a public offering $115,000 aggregate principal amount of our 7.0% Convertible Senior Notes due 2031, or the 7.0% convertible senior notes. After deducting the underwriting discount and the estimated offering costs, we received approximately $109,000 of net proceeds. Interest on the 7.0% convertible senior notes is paid semi-annually and the 7.0% convertible senior notes mature on April 1, 2031.

Prior to April 5, 2016, the 7.0% convertible senior notes are not redeemable at RAIT's option, except to preserve RAIT's status as a REIT. On or after April 5, 2016, RAIT may redeem all or a portion of the 7.0% convertible senior notes at a redemption price equal to the principal amount plus accrued and unpaid interest. Holders of 7.0% convertible senior notes may require RAIT to repurchase all or a portion of the 7.0% convertible senior notes at a purchase price equal to the principal amount plus accrued and unpaid interest on April 1, 2016, April 1, 2021, and April 1, 2026, or upon the occurrence of certain defined fundamental changes.

The 7.0% convertible senior notes are convertible at the option of the holder at an initial conversion rate of 130.0559 common shares per $1,000 principal amount of 7.0% convertible senior notes (equivalent to an initial conversion price of $7.69 per common share). Upon conversion of 7.0% convertible senior notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. The initial conversion rate is subject to adjustment in certain circumstances. We include the 7.0% convertible senior notes in earnings per share using the treasury stock method if the conversion value in excess of the par amount is considered in the money during the respective periods.

According to FASB ASC Topic 470, "Debt", we recorded a discount on our issued and outstanding 7.0% convertible senior notes of $8,228. This discount reflects the fair value of the embedded conversion option within the 7.0% convertible senior notes and was recorded as an increase to additional paid in capital. The fair value was calculated by discounting the cash flows required in the indenture relating to the 7.0% convertible senior notes agreement by a discount rate that represents management's estimate of our senior, unsecured, non-convertible debt borrowing rate at the time when the 7.0% convertible senior notes were issued. The discount will be amortized to interest expense through April 1, 2016, the date at which holders of our 7.0% convertible senior notes could require repayment.

Secured credit facility. During the six-month period ending June 30, 2011, we prepaid a $16,160 secured credit facility due to mature in October 2011.

As of June 30, 2011, we have $19,745 outstanding under our remaining secured credit facility, which is payable in December 2011 under the current terms of this facility. Our secured credit facility is secured by designated commercial mortgages and mezzanine loans.

Senior secured notes. During the six-month period ended June 30, 2011, the holder of the 10.0% senior secured convertible note, or the 10.0% senior note, converted $5,250 principal amount of the 10.0% senior note into 1,500,000 common shares. On April 26, 2011, we prepaid the remaining $15,700 principal amount of the 10.0% senior note.

Loans payable on real estate. During the six-month period ended June 30, 2011 we refinanced recourse financing consisting of a first mortgage of $12,500 principal amount with a fixed rate of 5.8%, due in April 2012, that was associated with one of our owned real estate properties with non-recourse financing provided by a consolidated securitization.

Non-Recourse Indebtedness

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO entities which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both of our CRE CDOs are meeting all of their overcollateralization, or OC, and interest coverage, or IC, trigger tests as of June 30, 2011.

During the six-month period ended June 30, 2011, we repurchased, from the market, a total of $6,700 in aggregate principal amount of CDO notes payable issued by our RAIT II CDO securitization. The aggregate purchase price was $2,499 and we recorded a gain on extinguishment of debt of $4,202, net of deferred financing costs that were written off.

CDO notes payable, at fair value. Both of our Taberna consolidated CDOs are failing OC trigger tests which cause a change to the priority of payments to the debt and equity holders of the respective securitizations. Upon the failure of an OC test, the indenture of each CDO requires cash flows that would otherwise have been distributed to us as equity distributions, or in some cases interest payments on our retained CDO notes payable, be used to pay down sequentially the outstanding principal balance of the most senior note holders. The OC tests failures are due to defaulted collateral assets and credit risk securities. During the six-month period ended June 30, 2011, $21,315 of cash flows were re-directed from our retained interests in these CDOs and were used to repay the most senior holders of our CDO notes payable.

Loans payable on real estate. During the six-month period ended June 30, 2011, we obtained a first mortgage on an investment in real estate from the Federal National Mortgage Association that has a principal balance of $13,400, 7 year term, and a 5.12% interest rate and a first mortgage on an investment in real estate from Bank of America that has a principal balance of $24,000, 10 year term, and a 6.09% interest rate.