Securities Held-to-Maturity

3 Months Ended

Jun. 30, 2011

Securities Held-to-Maturity

Note 3. Securities Held-to-Maturity

As described in Note 1, in conjunction with our March 2011 restructuring of our recourse debt obligations, a significant portion of our assets, including all of our securities, were transferred to a majority-owned subsidiary, CT Legacy REIT. In addition, as described in Note 2, our consolidated balance sheets separately state our direct assets and liabilities and certain assets and liabilities of consolidated VIEs. See Note 10 for disclosures regarding securities that have been transferred to CT Legacy REIT, and see Note 11 for comparable disclosures regarding securities that are held in consolidated securitization vehicles, as separately stated on our consolidated balance sheets.

Prior to their transfer to CT Legacy REIT, our securities portfolio consisted of commercial mortgage-backed securities, or CMBS, collateralized debt obligations, or CDOs, and other securities. Activity relating to our securities portfolio for the six months ended June 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other			Total Book Value (1)
December 31, 2010		$2,246			$1,209			$3,455
Principal paydowns		(45	)		—			(45	)
Discount/premium amortization & other (2)		168			12			180
Other-than-temporary impairments:
Recognized in earnings		(1,653	)		—			(1,653	)
Recognized in accumulated other comprehensive income		1,640			—			1,640
Transfer to CT Legacy REIT		(2,356	)		(1,221	)		(3,577	)
June 30, 2011		$—			$—			$—

(1)	Includes securities with a total face value of $36.0 million as of December 31, 2010. All securities have been transferred to CT Legacy REIT on March 31, 2011, as discussed in Note 1.
(2)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

The following table details overall statistics for our securities portfolio as of June 30, 2011 and December 31, 2010:

	June 30, 2011	December 31, 2010
Number of securities	─	7
Number of issues	─	5
Rating (1) (2)	n/a	CCC
Fixed / Floating (in millions) (3)	$─ / $─	$2 / $1
Coupon (1) (4)	n/a	7.44%
Yield (1) (4)	n/a	10.54%
Life (years) (1) (5)	n/a	1.9

(1)	Represents a weighted average as of December 31, 2010.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security and exclude unrated equity investments in CDOs with a net book value of $1.2 million as of December 31, 2010.
(3)	Represents the aggregate net book value of our portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.26% as of December 31, 2010.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of our securities as of June 30, 2011 and December 31, 2010 (in thousands):

	Rating as of June 30, 2011						Rating as of December 31, 2010
Vintage		B	CCC and Below		Total			B	CCC and Below		Total
2003		$—		$—		$—		$—		$1,210		$1,210
2002		—		—		—		—		—		—
2000		—		—		—		—		955		955
1997		—		—		—		218		—		218
1996		—		—		—		—		1,072		1,072
Total		$—		$—		$—		$218		$3,237		$3,455

Other-than-temporary impairments

Quarterly, we reevaluate our securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows from each securities investment. As a result of this evaluation, under the accounting guidance discussed in Note 2, during the first quarter of 2011, we recorded a gross other-than-temporary impairment of $13,000 prior to the transfer of these securities to CT Legacy REIT. In addition, we determined that $1.6 million of impairments previously recorded in other comprehensive income should be recognized as credit losses due to a decrease in cash flow expectations for two of our securities.

To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of management is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest on the underlying loans, net of related expenses, and (ii) current subordination levels at both the individual loans which serve as collateral under our securities and at the securities themselves.

The following table summarizes activity related to the other-than-temporary impairments of our securities during the six months ended June 30, 2011 (in thousands):

	Gross Other-Than- Temporary Impairments			Credit Related Other-Than-Temporary  Impairments			Non-Credit Related Other-Than-Temporary  Impairments
December 31, 2010		$30,567			$27,776			$2,791
Additions due to change in expected      cash flows		13			1,653			(1,640	)
Amortization of other-than-temporary      impairments		(110	)		(67	)		(43	)
Transfer to CT Legacy REIT (1)		(30,470	)		(29,362	)		(1,108	)
June 30, 2011		$—			$—			$—

(1) All securities have been transferred to CT Legacy REIT on March 31, 2011, as discussed in Note 1.

Unrealized losses and fair value of securities

As discussed above, we do not directly own any securities as of June 30, 2011. Historically, certain of our securities have been carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates.

The following table shows the gross unrealized losses and fair value of our securities for which the fair value is lower than our book value as of December 31, 2010 and that were not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months				Greater Than 12 Months					Total
	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)
Floating Rate		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3
Fixed Rate		—		—		—		—			—		—			—
Total		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3

(1) Excludes, as of December 31, 2010, $2.2 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of December 31, 2010, one of our securities with a book value of $1.3 million was carried at a balance in excess of its fair value. Fair value for this security was $158,000 as of December 31, 2010. In total, as of December 31, 2010, we had seven investments in securities with an aggregate book value of $3.5 million that have an estimated fair value of $5.5 million, including three investments in CMBS with an estimated fair value of $5.3 million and four investments in CDOs and other securities with an estimated fair value of $158,000. These valuations do not include the value of interest rate swaps entered into in conjunction with the purchase/financing of these investments, if any.

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value.