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EQUITY-BASED COMPENSATION
6 Months Ended
Jun. 30, 2017
Share-based Compensation [Abstract]  
EQUITY-BASED COMPENSATION
EQUITY-BASED COMPENSATION
Class A and OCGH Unit Awards
During the six months ended June 30, 2017, the Company granted 1,212,329 Class A units and 266,362 restricted OCGH units to its employees and directors, subject to annual vesting over a weighted average period of approximately 5.6 years. The grant date fair value of OCGH units awarded during the six months ended June 30, 2017 was determined by applying a 20% discount to the Class A unit trading price on the New York Stock Exchange as of the grant date. In the first quarter of 2017, the Company adopted the new accounting guidance related to share-based payment awards, as further discussed in note 2. With respect to forfeitures, the Company adopted the guidance on a modified retroactive basis and made an accounting policy election to account for forfeitures when they occur. Accordingly, no forfeitures have been assumed in the calculation of compensation expense effective January 1, 2017.
As of June 30, 2017, the Company expected to recognize compensation expense on its unvested Class A and OCGH unit awards of $170.9 million over a weighted average period of 4.5 years.  
A summary of the status of the Company’s unvested Class A and OCGH unit awards and a summary of changes for the period presented are set forth below (actual dollars per unit):
 
Class A Units
 
OCGH Units
 
Number of Units
 
Weighted Average Grant Date Fair Value
 
Number of Units
 
Weighted Average Grant Date Fair Value
 
 
 
 
 
 
 
 
Balance, December 31, 2016
2,128,400

 
$
41.86

 
2,337,953

 
$
39.80

Granted
1,212,329

 
45.30

 
266,362

 
37.13

Vested
(744,749
)
 
40.40

 
(344,702
)
 
39.23

Forfeited
(16,694
)
 
45.58

 

 

Balance, June 30, 2017
2,579,286

 
$
43.88

 
2,259,613

 
$
39.62


Equity Value Units
OCGH equity value units (“EVUs”) represent special limited partnership units in OCGH that entitle the holder the right to receive special distributions that will be settled in OCGH units, based on value created during a specified period in excess of a fixed “Base Value.” The value created will be measured on a per unit basis, based on the appreciation of the Class A units and certain components of quarterly distributions with respect to OCGH units over the period beginning on January 1, 2015 and ending on each of December 31, 2019, December 31, 2020 and December 31, 2021, with one-third of the EVUs recapitalizing on each such date. EVUs also give the holder the right, subject to service vesting and Oaktree performance relative to the accreting Base Value, to receive certain quarterly distributions from OCGH. EVUs do not entitle the holder to any voting rights.
Certain EVUs provide the holder with liquidity rights in respect of the special distributions, if any, that will be settled in OCGH units. The Company accounts for EVUs with liquidity rights as liability-classified awards. As of June 30, 2017, there were 1,000,000 equity-classified EVUs and 1,000,000 liability-classified EVUs outstanding. As of June 30, 2017, the Company expected to recognize $4.6 million of compensation expense on its unvested EVUs over the next 2.5 years. Equity-classified EVUs that require future service are expensed on a straight-line basis over the requisite service period. Liability-classified EVUs are remeasured at the end of each quarter.
On April 26, 2017, the terms of the EVU agreement were amended such that the value received under the EVUs will be reduced by (i) distributions received by the holder on 225,000 OCGH units granted to the holder on April 26, 2017, (ii) the value of the portion of profit sharing payments received by the holder attributable to the net incentive income received from certain funds, and (iii) the full value of the OCGH units granted to the holder on April 26, 2017. To the extent that the reduction relates to the value of any such OCGH units that are unvested at the time of the reduction, such OCGH units will vest at that time. The amendment was accounted for as a modification of an equity award in the second quarter of 2017 and resulted in $4.1 million of incremental compensation cost as of the modification date, which will be recognized over the remaining vesting period.
The fair value of EVUs was determined using a Monte Carlo simulation model at the grant date for equity-classified EVUs and as of the period end date for liability-classified EVUs. The fair value is affected by the Class A unit trading price and assumptions regarding certain complex and subjective variables, including the expected Class A unit trading price volatility, distributions and exercise timing, and the risk-free interest rate.
Deferred Equity Units
A deferred equity unit represents a special unit award that, when vested, will be settled with an unvested OCGH unit on a one-for-one basis. The number of deferred equity units that will vest is based on the achievement of certain performance targets through June 2021. Once a performance target has been met, the applicable number of OCGH units will be issued and begin to vest over 4.0 years. The holder of a deferred equity unit is not entitled to any distributions until the issuance of an OCGH unit in settlement of a deferred equity unit. As of June 30, 2017, there were 250,000 deferred equity units outstanding, all of which were granted in the second quarter of 2017. As of June 30, 2017, the Company expected to recognize $9.1 million of compensation expense on its unvested deferred equity units over a weighted average period of approximately 5.5 years. Please see note 12 for more information.
The fair value of the deferred equity units was determined at the grant date based on the then-prevailing Class A unit trading price and reflected a 20% lack-of-marketability discount for the OCGH units that will be issued upon vesting.