UNSECURED BORROWINGS

9 Months Ended

Sep. 30, 2014

NOTE 8 ¾ UNSECURED BORROWINGS

Unsecured borrowings consist of 30-year junior subordinated notes originally issued in 2005 and 2006 to three special-purpose statutory trusts formed to issue $3.1 million of the trusts’ common securities to Capstead and to privately place $100 million of so-called trust preferred securities with unrelated third party investors. In December 2013 the statutory trusts were dissolved after the subordinated notes were distributed to the holders of the trusts’ common and preferred securities. Included in Receivables and other assets are $2.1 million in remaining issue costs at September 30, 2014 associated with the original issuance of these notes. Note balances and related weighted average interest rates as of September 30, 2014 and December 31, 2013 (calculated including issue cost amortization) were as follows (dollars in thousands):

	Borrowings Outstanding		Average Rate *
Junior subordinated notes associated with:
Capstead Mortgage Trust I	$	35,000		8.31	%
Capstead Mortgage Trust II		40,000		8.46
Capstead Mortgage Trust III		25,000		8.78
	$	100,000		8.49

The indicated weighted average rates have been in effect since issuance. After considering cash flow hedges that coincide with the floating rate terms of these borrowings that begin in October and December 2015 for the notes associated with Capstead Mortgage Trusts I and II and September 2016 for the notes associated with Capstead Mortgage Trust III, the effective borrowing rate during the final 20 years of these borrowings will average 7.56%, subject to certain adjustments for the effects of measured hedge ineffectiveness, if any.

The notes associated with Capstead Mortgage Trust I mature in October 2035 and are currently redeemable, in whole or in part, without penalty, at the Company’s option. The notes associated with Capstead Mortgage Trust II mature in December 2035 and are redeemable, in whole or in part, without penalty, at the Company’s option anytime on or after December 15, 2015. The notes associated with Capstead Mortgage Trust III mature in September 2036 and are redeemable, in whole or in part, without penalty, at the Company’s option anytime on or after September 15, 2016.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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