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DERIVATIVE INSTRUMENTS
 12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS
10. DERIVATIVE INSTRUMENTS
 
The Company uses derivative instruments primarily to economically manage the fair value variability of fixed rate assets caused by interest rate fluctuations and overall portfolio market risk. The following is a breakdown of the derivatives outstanding as of December 31, 2018 and 2017 ($ in thousands):
 
December 31, 2018
 
 
 
 
 
Fair Value
 
Remaining
Maturity
(years)
Contract Type
 
Notional
 
Asset(1)
 
Liability(1)
 
 
 
 
 
 
 
 
 
 
Caps
 
 

 
 

 
 

 
 
1 Month LIBOR
 
$
69,571

 
$
—

 
$
—

 
1.35
Futures
 
 

 
 

 
 

 
 
5-year Swap
 
274,900

 
—

 
526

 
0.25
10-year Swap
 
227,700

 
—

 
436

 
0.25
5-year U.S. Treasury Note
 
6,800

 
—

 
13

 
0.25
Total futures
 
509,400

 
—

 
975

 
 
Total derivatives
 
$
578,971

 
$
—

 
$
975

 
 
 
(1)  Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.

December 31, 2017
 
 
 
 
 
Fair Value
 
Remaining
Maturity
(years)
Contract Type
 
Notional
 
Asset(1)
 
Liability(1)
 
 
 
 
 
 
 
 
 
 
Futures
 
 

 
 

 
 

 
 
5-year Swap
 
$
304,300

 
$
656

 
$
—

 
0.25
10-year Swap
 
248,100

 
133

 
153

 
0.25
5-year U.S. Treasury Note
 
11,400

 
47

 
—

 
0.25
10-year U.S. Treasury Note
 
—

 
—

 
911

 

Total futures
 
563,800

 
836

 
1,064

 
 
Swaps
 
 

 
 

 
 

 
 
3 Month LIBOR(2)
 
50,000

 
—

 
1,542

 
2.68
Credit Derivatives
 
 

 
 

 
 

 
 
CDX
 
34,500

 
52

 
—

 
0.12
Total credit derivatives
 
34,500

 
52

 
—

 
 
Total derivatives
 
$
648,300

 
$
888

 
$
2,606

 
 
 
(1)  Shown as derivative instruments, at fair value, in the accompanying consolidated balance sheets.
(2) The Company was paying fixed interest rates on these swaps. The swap was subsequently terminated in 2018.
 
The following table indicates the net realized gains (losses) and unrealized appreciation (depreciation) on derivatives, by primary underlying risk exposure, as included in net result from derivatives transactions in the consolidated statements of operations for the years ended December 31, 2018, 2017 and 2016 ($ in thousands):
 
 
Year Ended December 31, 2018
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
 
 

 
 

 
 

Contract Type
 
 
 
 
 
Futures
$
(747
)
 
$
16,176

 
$
15,429

Swaps
1,403

 
(848
)
 
555

Credit Derivatives
49

 
(107
)
 
(58
)
Total
$
705

 
$
15,221

 
$
15,926

 
 
Year Ended December 31, 2017
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
 
 

 
 

 
 

Contract Type
 
 
 
 
 
Futures
$
(4,975
)
 
$
(7,655
)
 
$
(12,630
)
Swaps
1,126

 
(1,008
)
 
118

Credit Derivatives
417

 
(546
)
 
(129
)
Total
$
(3,432
)
 
$
(9,209
)
 
$
(12,641
)


 
Year Ended December 31, 2016
 
Unrealized
Gain/(Loss)
 
Realized
Gain/(Loss)
 
Net Result
from
Derivative
Transactions
 
 

 
 

 
 

Contract Type
 
 
 
 
 
Futures
$
3,608

 
$
(3,954
)
 
$
(346
)
Swaps
956

 
(1,264
)
 
(308
)
Credit Derivatives
(340
)
 
(415
)
 
(755
)
Total
$
4,224

 
$
(5,633
)
 
$
(1,409
)


The Company’s counterparties held $5.0 million and $9.6 million of cash margin as collateral for derivatives as of December 31, 2018 and 2017, respectively, which is included in restricted cash in the consolidated balance sheets.
 
Futures

Collateral posted with our futures counterparties is segregated in the Company’s books and records. Interest rate futures are centrally cleared by the Chicago Mercantile Exchange (“CME”) through a Futures Commission Merchant. Interest rate futures that are governed by an ISDA agreement provide for bilateral collateral pledging based on the counterparties’ market value. The counterparties have the right to re-pledge the collateral posted but have the obligation to return the pledged collateral, or substantially the same collateral, if agreed to by us, as the market value of the interest rate futures change.

The Company is required to post initial margin and daily variation margin for our interest rate futures that are centrally cleared by CME. CME determines the fair value of our centrally cleared futures, including daily variation margin. Effective January 3, 2017, CME amended their rulebooks to legally characterize daily variation margin payments for centrally cleared interest rate futures as settlement rather than collateral. As a result of this rule change, variation margin pledged on the Company’s centrally cleared interest rate futures is settled against the realized results of these futures.

Credit Risk-Related Contingent Features
 
The Company has agreements with certain of its derivative counterparties that contain a provision whereby, if the Company defaults on certain of its indebtedness, the Company could also be declared in default on its derivatives, resulting in an acceleration of payment under the derivatives. As of December 31, 2018 and 2017, the Company was in compliance with these requirements and not in default on its indebtedness. As of December 31, 2018, there was no cash collateral held by the derivative counterparties for these derivatives. As of December 31, 2017, there was $4.1 million of cash collateral held by the derivative counterparties for these derivatives, included in restricted cash in the consolidated statements of financial condition. No additional cash would be required to be posted if the acceleration of payment under the derivatives was triggered.