Assets and Liabilities of Consolidated CLOs

The term CLO generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated note securities to finance the purchase of those investments. The investment activities of a CLO are governed by extensive investment guidelines, generally contained within a CLO’s indenture and other governing documents which limit, among other things, the CLO’s exposure to any single industry or obligor and provide that the CLO’s assets satisfy certain ratings requirements. Most CLOs have a defined investment period during which they are allowed to make investments and reinvest capital as it becomes available. The CLOs are considered variable interest entities (VIE).

The assets of each of the CLOs, including cash and cash equivalents, are held solely as collateral to satisfy the obligations of the CLOs. The Company does not own and has no right to the benefits from, nor does it bear the risks associated with, the assets held by the CLOs, beyond its direct investments in, and investment advisory fees generated from, the CLOs. If the Company were to liquidate, the assets of the CLOs would not be available to its general creditors, and as a result, the Company does not consider these assets available for the benefit of its investors. Additionally, the investors in the CLOs have no recourse to the Company’s general assets for the debt issued by the CLOs. Therefore, this debt is not the Company’s obligation. The Company consolidates entities when it is determined to be the primary beneficiary under current VIE accounting guidance.

On January 18, 2017, the Company sold its ownership in the subordinated notes of a CLO. As a result of the sale, the Company determined that it no longer had the controlling interest in such entity. The Company, therefore, deconsolidated its ownership in the subordinated notes of the CLO and is no longer reporting the assets and liabilities of the CLO in its Consolidated Balance Sheet as of March 31, 2017, or the revenue and expenses of the CLO in its Consolidated Statement of Operations for the three months ended March 31, 2017.

The table below represents the assets and liabilities of the consolidated CLOs that are included in the Company’s Consolidated Balance Sheets as of the dates indicated:



	As of
	March 31, 2017		December 31, 2016
Assets:
Cash and cash equivalents	$	40,461	$	45,589
Loans, at fair value ⁽¹⁾	524,399		928,240
Other assets	11,058		15,666
Total assets of consolidated CLOs	$	575,918	$	989,495
Liabilities:
Debt	$	512,533	$	912,034
Other liabilities and accrued expenses	22,724		19,935
Total liabilities of consolidated CLOs	$	535,257	$	931,969

Net	$	40,661	$	57,526


(1)	The unpaid principal balance for these loans is $534,769 and $952,225 and the difference between their fair value and UPB is $10,370 and $23,985 at March 31, 2017 and December 31, 2016, respectively.

The Company’s beneficial interests and maximum exposure to loss related to the consolidated CLOs are limited to (i) ownership in the subordinated notes and related participations in management fees of the CLOs and (ii) accrued management fees. Although these beneficial interests are eliminated upon consolidation, the application of the measurement alternative results in the net amount of the CLOs shown above to be equivalent to the beneficial interests retained by the Company as illustrated in the below table:



Beneficial interests:	As of
	March 31, 2017		December 31, 2016
Subordinated notes and related participations in management fees	$	40,294	$	56,820
Accrued management fees	367		706
Total beneficial interests	$	40,661	$	57,526

The following table represents revenue and expenses of the consolidated CLOs included in the Company’s Consolidated Statements of Operations for the periods indicated:



	Three Months Ended March 31,
	2017		2016
Income:
Net realized and unrealized gains (losses)	$	1,253	$	(2,765	)
Interest income	7,614		10,442
Total revenue	8,867		7,677
Expenses:
Interest expense	4,775		6,338
Other expense	177		234
Total expense	4,952		6,572

Net income (loss) attributable to consolidated CLOs	$	3,915	$	1,105

As summarized in the table below, the application of the measurement alternative results in the consolidated net income summarized above to be equivalent to the Company’s own economic interests in the CLOs which are eliminated upon consolidation:



Economic interests:	Three Months Ended March 31,
	2017		2016
Distributions received and realized and unrealized gains (losses) on the subordinated notes held by the Company, net	$	3,548	$	436
Management fee income	367		669
Total economic interests	$	3,915	$	1,105