Note 5. Consolidated Securitization Vehicles

As of December 31, 2012, our consolidated balance sheet includes an aggregate $145.5 million of assets and $139.3 million of liabilities related to two consolidated securitization vehicles. As of December 31, 2011, our consolidated balance sheet included an aggregate $1.0 billion of assets and $1.2 billion of liabilities related to nine consolidated securitization vehicles.

The seven securitizations that are no longer consolidated as of December 31, 2012 include: (i) two securitization vehicles which were deconsolidated in December 2012 as a result of our CT CDO Deconsolidation, (ii) four securitization vehicles which were deconsolidated in February 2012 as a result of our CT Legacy Asset Deconsolidation, and (iii) one securitization vehicle that liquidated in the ordinary course. See Note 1 for further discussion of the sale of our CT CDO Deconsolidation and CT Legacy Asset Deconsolidation.

The following disclosures relate specifically to the two securitization vehicles which remain consolidated on our balance sheet as of December 31, 2012, CT CDO I and GSMS 2006-FL8A, a CMBS vehicle consolidated by CT CDO I. See Note 17 for comparable disclosures related to the seven securitization vehicles that are no longer consolidated as of December 31, 2012.

Securitization Vehicles Overview

We own the residual debt and equity positions of CT CDO I, and through CT CDO I, we own the subordinate securities of the GSMS 2006-FL8A securitization. As a result of consolidation, our subordinate debt and equity ownership interests in these entities are not included on our balance sheet, which instead reflects both the assets held and debt issued by these entities to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of these securitization vehicles, as opposed to our net economic interests in these entities.

Our economic interest in the loans receivable assets held by these entities, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets will be limited by the entities’ distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our balance sheet, are non-recourse to us, and can only be satisfied by proceeds from each entities’ respective asset pool.

We are not obligated to provide, nor have we provided, any financial support to these securitization vehicles. As of December 31, 2012, our maximum exposure to loss from these vehicles is $6.2 million, the difference between the assets and liabilities of such vehicles included on our consolidated balance sheet.

An affiliate of our Manager is the CDO collateral manager for one of our consolidated securitization vehicles, and is named special servicer on a number of these two entities’ collateral assets.

A. Loans Receivable, Net – Consolidated Securitization Vehicles

The following table details overall statistics for our consolidated securitization vehicles’ loans receivable portfolio as of December 31, 2012 and 2011 (dollars in thousands):

	December 31, 2012			December 31, 2011
Number of investments		7			12
Principal balance		$164,180			$228,151
Net book value		$141,500			$145,491
Coupon (1) (2)		4.73	%		3.40	%
Yield (1) (2)		4.74	%		3.28	%
Maturity (years) (1) (3)		0.7			1.0


(1)	Represents a weighted average as of December 31, 2012 and 2011, respectively.
(2)	All loans are floating rate loans as of both December 31, 2012 and 2011. Calculations are based on LIBOR of 0.21% and 0.30% as of December 31, 2012 and 2011, respectively.
(3)	For loans in CT CDO I, assumes all extension options are executed. For loans in GSMS 2006-FL8A, maturity is based on information provided by its trustee.

The tables below detail the types of loans in our consolidated securitization vehicles’ loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of December 31, 2012 and 2011 (in thousands):

	December 31, 2012					December 31, 2011
Asset Type	Book Value		Percentage			Book Value		Percentage
Subordinate interests in mortgages		$79,000		56	%		$80,491		55	%
Senior mortgages		62,500		44			65,000		45
Total		$141,500		100	%		$145,491		100	%

Property Type	Book Value		Percentage			Book Value		Percentage
Office		$111,500		79	%		$139,789		96	%
Hotel		30,000		21			5,702		4
Total		$141,500		100	%		$145,491		100	%

Geographic Location	Book Value		Percentage			Book Value		Percentage
West		$92,500		65	%		$89,500		62	%
Northeast		27,000		19			27,000		19
Southeast		12,404		9			15,142		10
Southwest		9,596		7			13,350		9
Midwest		—		—			499		—
Total		$141,500		100	%		$145,491		100	%

Loan risk ratings

Quarterly, our Manager evaluates our consolidated securitization vehicles’ loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of our consolidated securitization vehicles’ loans receivable based on our internal risk ratings as of December 31, 2012 and 2011 (dollars in thousands):

		Loans Receivable as of December 31, 2012						Loans Receivable as of December 31, 2011
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$47,000		$47,000		5		$142,202		$142,202
	4 - 5		2		92,500		92,500		—		—		—
	6 - 8		3		24,680		2,000		7		85,949		3,289

Total			7		$164,180		$141,500		12		$228,151		$145,491

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our consolidated securitization vehicles’ loans receivable by both loan type and our internal risk ratings as of December 31, 2012 and 2011 (dollars in thousands):

		Senior Mortgage Loans
		as of December 31, 2012						as of December 31, 2011
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		1		$65,000		$65,000
	4 - 5		1		62,500		62,500		—		—		—
	6 - 8		—		—		—		—		—		—

Total			1		$62,500		$62,500		1		$65,000		$65,000

		Subordinate Interests in Mortgages
		as of December 31, 2012						as of December 31, 2011
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$47,000		$47,000		4		$77,202		$77,202
	4 - 5		1		30,000		30,000		—		—		—
	6 - 8		3		24,680		2,000		7		85,949		3,289

Total			6		$101,680		$79,000		11		$163,151		$80,491

Loan impairments

The following table describes our consolidated securitization vehicles’ impaired loans as of December 31, 2012, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (dollars in thousands):

	December 31, 2012
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss (1)			Net Book Value
Performing loans		1		$7,531		($7,531	)		$—
Non-performing loans		2		17,149		(15,149	)		2,000

Total impaired loans		3		$24,680		($22,680	)		$2,000


(1)	Provision for loan loss represents a 92% loss severity against three subordinate interests in mortgages with an aggregate principal balance of $24.7 million as of December 31, 2012.

The following table describes our consolidated securitization vehicles’ impaired loans as of December 31, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (dollars in thousands):

	December 31, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss (1)			Net Book Value
Performing loans		2		$37,531		($37,531	)		$—
Non-performing loans		5		48,014		(44,725	)		3,289

Total impaired loans		7		$85,545		($82,256	)		$3,289


(1)	Provision for loan loss represents a 96% loss severity against seven subordinate interests in mortgages with an aggregate principal balance of $85.9 million as of December 31, 2011.

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of December 31, 2012, our consolidated securitization vehicles had one loan with a net book value of $27.0 million which was in maturity default but had no provision recorded. We expect to collect all principal and interest due under this loan.

The following table details our consolidated securitization vehicles’ average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the year ended December 31, 2012 (in thousands):

Income on Impaired Loans for the Year ended December 31, 2012
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$—		$—
Subordinate Interests in Mortgages		2,773		290
Mezzanine & Other Loans		—		—

Total		$2,773		$290


(1)	Substantially all of the income recorded on impaired loans during the period was received in cash.

Income on Impaired Loans for the Year ended December 31, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$—		$—
Subordinate Interests in Mortgages		3,289		1,546
Mezzanine & Other Loans		—		—

Total		$3,289		$1,546


(1)	Substantially all of the income recorded on impaired loans during the period was received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of December 31, 2012.

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of December 31, 2012 (in thousands):

Nonaccrual Loans Receivable as of December 31, 2012
Asset Type	Principal Balance		Net Book Value
Subordinate Interests in Mortgages		$24,680		$2,000

Total		$24,680		$2,000

The following table details our consolidated securitization vehicles’ loans receivable which are on nonaccrual status as of December 31, 2011 (in thousands):

Nonaccrual Loans Receivable as of December 31, 2011
Asset Type	Principal Balance		Net Book Value
Subordinate Interests in Mortgages		$80,449		$27,789

Total		$80,449		$27,789

Loan modifications

During the year ended December 31, 2012, there was one modification of a loan in a consolidated securitization vehicle that was considered a troubled debt restructuring, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. This loan modification included a six-month extension of a $6.6 million subordinate mortgage loan with no interest rate increase. This loan has been individually assessed for impairment, and no impairment beyond the existing $4.6 million impairment was determined to be necessary.

B. Debt Obligations – Consolidated Securitization Vehicles

The balances of each of our consolidated securitization vehicles’ outstanding securitized debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows (in thousands):

	December 31, 2012				December 31, 2011		December 31, 2012
Non-Recourse Securitized Debt Obligations	Principal Balance		Book Value		Book Value		Coupon(1)			All-In Cost(1)			Maturity Date(2)
CT CDO I		$91,131		$91,131		$121,409		1.61	%		1.63	%	July 2039
GSMS 2006-FL8A		$48,053		$48,053		$50,552		1.07	%		1.07	%	June 2020

Total/Weighted Average		$139,184		$139,184		$171,961		1.42	%		1.44	%	November 2032


(1)	Represents a weighted average for each respective facility, assuming LIBOR of 0.21% at December 31, 2012 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each securitization trust. Repayment of securitized debt is a function of collateral cash flows which are disbursed in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity date above.

As of December 31, 2012, loans receivable with an aggregate book value of $141.5 million serve as collateral for the non-recourse debt and equity securities issued by our consolidated securitizations vehicles. As of December 31, 2011, loans receivable with an aggregate book value of $145.5 million serve as collateral for the securities issued by these same vehicles.

One of our consolidated securitization vehicles, CT CDO I is subject to interest coverage and overcollateralization tests which, when breached, provide for hyper-amortization of the senior notes sold by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, CT CDO I provides for the re-classification of interest proceeds from impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold. As a result collateral asset impairments and the related breaches of these interest coverage and overcollateralization tests, we currently do not receive any cash payments from CT CDO I.