VARIABLE INTEREST ENTITIES

9 Months Ended

Sep. 30, 2014

Variable Interest Entity [Line Items]

NOTE 19 - VARIABLE INTEREST ENTITIES

In general, a VIE is an entity that does not have sufficient equity to finance its operations without additional subordinated financial support, or an entity for which the risks and rewards of ownership are not directly linked to voting interests. The Company has variable interests in VIEs through its management contracts and investments in various securitization entities, including CDO issuers. Since the Company serves as the asset manager for the investment entities it sponsored and manages, the Company is generally deemed to have the power to direct the activities of the VIE that most significantly impact the entity's economic performance. In the case of an interest in a VIE managed by the Company, the Company will perform an additional qualitative analysis to determine if its interest (including any investment as well as any management fees that qualify as variable interests) could absorb losses or receive benefits that could potentially be significant to the VIE. This analysis considers the most optimistic and pessimistic scenarios of potential economic results that could reasonably be experienced by the VIE. Then, the Company compares the benefits it would receive (in the optimistic scenario) or the losses it would absorb (in the pessimistic scenario) as compared to benefits and losses absorbed by the VIE in total. If the benefits or losses absorbed by the Company were significant as compared to total benefits and losses absorbed by all variable interest holders, then the Company would conclude it is the primary beneficiary.

The Company prepared a quantitative analysis to measure the management/incentive fees and the Company’s equity ownership position in RSO relative to the anticipated economic performance of RSO and determined that its benefits could be significant to RSO. Accordingly, management concluded that the Company is the primary beneficiary and should consolidate RSO. However, the assets of RSO are held solely to satisfy RSO’s obligations and the creditors of RSO have no recourse against the assets of the Company, nor do creditors of the Company have recourse against the assets of RSO.

The following reflects the assets and liabilities and operations of RSO which were consolidated by the Company:



RSO Balance Sheets Detail (in thousands):
	September 30, 2014			December 31, 2013
ASSETS ⁽¹⁾
Cash and cash equivalents	$	163,269		$	262,270
Restricted cash	83,604			63,309
Subtotal - Cash and cash equivalents	246,873			325,579
Investment securities, trading	9,187			11,558
Investment securities available-for-sale, pledged as collateral, at fair value	204,843			162,608
Investment securities available-for-sale, at fair value	76,175			52,598
Subtotal - Investments, at fair value	290,205			226,764
Loans, pledged as collateral and net of allowances of $4.5 million and $13.8 million (of which $83.0 million and $0 at fair value)	1,744,899			1,369,526
Loans receivable–related party net of allowance of $936,000 and $0	4,172			6,966
Loans held for sale	91,382			21,916
Subtotal - Loans, before eliminations	1,840,453			1,398,408
Eliminations	(558		)	(950		)
Subtotal - Loans	1,839,895			1,397,458
Property held-for-sale	29,581			25,346
Investment in real estate	—			29,778
Investments in unconsolidated entities	60,540			69,069
Subtotal, Investments in real estate and unconsolidated entities	90,121			124,193
Line items included in "other assets":
Linked transactions, net at fair value	14,272			30,066
Derivatives, at fair value	21,618			—
Interest receivable	14,831			8,965
Deferred tax asset	4,853			5,212
Principal paydown receivable	34,297			6,821
Intangible assets	10,254			11,822
Prepaid expenses	4,529			2,871
Other assets	20,075			10,726
Subtotal - Other assets, before eliminations	124,729			76,483
Eliminations	(2,810		)	(16		)
Subtotal - Other assets	121,919			76,467
Total assets (excluding eliminations)	$	2,592,381		$	2,151,427
Total assets (including eliminations)	$	2,589,013		$	2,150,461
LIABILITIES⁽²⁾
Borrowings (of which $94.9 million and $0 at fair value)	$	1,590,958		$	1,319,810
Eliminations	283			205
Subtotal Borrowings	1,591,241			1,320,015
Distribution payable	30,340			27,023
Accrued interest expense	3,875			1,693
Derivatives, at fair value	8,830			10,586
Accrued tax liability	3,131			1,629
Deferred tax liability	—			4,112
Accounts payable and other liabilities	11,331			12,650
Subtotal - Other liabilities, before eliminations	57,507			57,693
Eliminations	(2,665		)	(2,446		)
Subtotal - Other liabilities	54,842			55,247
Total liabilities (before eliminations)	$	1,648,465		$	1,377,503
Total liabilities (after eliminations)	$	1,646,083		$	1,375,262



RSO Balance Sheets Detail (in thousands):
	September 30, 2014			December 31, 2013
(1) Assets of consolidated RSO's VIEs included in total assets above:
Restricted cash	$	80,633		$	61,372
Investments securities available-for-sale, pledged as collateral, at fair value	110,376			105,846
Loans held for sale	36,674			2,376
Loans, pledged as collateral and net of allowances of $4.0 million and $8.8 million ($83.0 million and $0 at fair value)	1,405,788			1,219,569
Interest receivable	8,066			5,627
Prepaid expenses	217			247
Principal receivable	34,100			6,821
Other assets	(12		)	—
Total assets of consolidated RSO VIEs	$	1,675,842		$	1,401,858

(2) Liabilities of consolidated RSO's VIEs included in total liabilities above:
Borrowings ($140.2 million and $0 at fair value)	$	1,214,923		$	1,070,339
Accrued interest expense	1,280			918
Derivatives, at fair value	7,958			10,191
Accounts payable and other liabilities	(418		)	1,604
Total liabilities of consolidated RSO VIEs	$	1,223,743		$	1,083,052



RSO Income Statement Detail (in thousands):
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
REVENUES
Interest income:
Loans	$	27,026		$	24,374		$	73,474		$	78,370
Securities	5,168			3,411			12,563			10,949
Interest income − other	1,647			679			5,481			3,180
Total interest income	33,841			28,464			91,518			92,499
Interest expense	11,589			11,762			31,836			34,061
Net interest income	22,252			16,702			59,682			58,438
Rental income	1,118			4,649			7,777			15,875
Dividend income	16			223			169			256
Equity in net earnings (losses) of unconsolidated subsidiaries	887			(535		)	4,663			(888		)
Fee income	2,344			1,245			7,166			4,182
Net realized and unrealized gains on sales of investment securities available-for-sale and loans	7,546			570			15,487			3,355
Net realized and unrealized gains (losses) on investment securities, trading	376			(229		)	(1,834		)	(864		)
Unrealized gain (losses) and net interest income on linked transactions, net	177			1,161			7,494			(4,343		)
Revenues from consolidated VIE-RSO	34,716			23,786			100,604			76,011
OPERATING EXPENSES
Management fees − related party	3,606			5,113			10,000			11,006
Equity compensation − related party	798			2,120			4,497			7,866
Rental operating expense	695			3,523			5,168			11,084
General and administrative	11,586			2,898			30,936			8,761
Depreciation and amortization	562			904			2,158			3,041
Income tax (benefit) expense	(237		)	722			(667		)	4,221
Net impairment losses recognized in earnings	—			255			—			811
Provision (recovery) for loan losses	1,439			741			(1,739		)	541
Total operating expenses	18,449			16,276			50,353			47,331
Reclassification of income tax expense	237			(722		)	667			(4,221		)
Expenses of consolidated VIE-RSO	18,686			15,554			51,020			43,110
Adjusted operating income	16,030			8,232			49,584			32,901
OTHER REVENUE (EXPENSE)
(Loss) gain on sale of real estate	(69		)	16,607			2,973			16,607
Other expense	—			—			(1,262		)	—
Loss on the reissuance of debt	(1,867		)	—			(2,469		)	—
Other expense, net, from consolidated VIE-RSO	(1,936		)	16,607			(758		)	16,607
Income from continuing operations	14,094			24,839			48,826			49,508
Income tax provision-RSO	(237		)	722			(667		)	4,221
NET INCOME	14,331			24,117			49,493			45,287
Net income allocated to preferred shares	(5,545		)	(1,996		)	(11,303		)	(5,107		)
Net income allocated to noncontrolling interests	(1,458		)	—			(1,069		)	—
NET INCOME ALLOCABLE TO RSO COMMON SHAREHOLDERS	$	7,328		$	22,121		$	37,121		$	40,180



RSO Cash Flow Detail (in thousands)	Nine Months Ended
	September 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	49,493		$	45,287
Items included in "Change in cash attributable to consolidated VIE-RSO":
(Recovery) provision for loan losses	(1,739		)	541
Depreciation of investments in real estate and other	2,252			1,638
Amortization of intangible assets	1,541			1,463
Amortization of term facilities	—			876
Accretion of net discounts on loans held for investment	(2,045		)	(8,306		)
Accretion of net discounts on securities available-for-sale	(2,847		)	(1,925		)
Amortization of discounts on convertible notes	896			—
Amortization of discount on notes securitization	70			3,937
Amortization of debt issuance costs on notes of securitizations	2,596			2,868
Amortization of stock-based compensation	4,497			7,866
Amortization of terminated derivative instruments	212			322
Distribution accrued to preferred stockholders	—			(5,107		)
Accretion of interest-only available-for-sale securities	(573		)	(714		)
Non-cash incentive compensation to the Manager	—			484
Deferred income tax (benefit) provision	(689		)	502
Change in mortgage loans held for sale, net	(42,178		)	—
Purchase of securities, trading	(4,000		)	(11,044		)
Principal payments on securities, trading	50			4,211
Proceeds from sales of securities, trading	379			18,713
Net realized and unrealized gain on investment securities, trading	1,834			864
Net realized gains on sales of investment securities available-for-sale and loans	(15,488		)	(3,355		)
Loss on the reissuance of debt	2,469			—
Gain on sale of real estate	(2,973		)	(16,607		)
Net impairment losses recognized in earnings	—			802
Linked transactions fair value adjustments	(5,713		)	5,224
Equity in net (earnings) losses of unconsolidated subsidiaries	(4,663		)	888
Changes in operating assets and liabilities, net of acquisitions	6,757			17,404
Net cash (used in) provided by operating activities	(59,355		)	21,545
Change in consolidated VIE-RSO cash for the period	99,001			(59,185		)
Subtotal - Change in cash attributable to consolidated VIE-RSO before eliminations	39,646			(37,640		)
Elimination of intercompany activity	2,714			(291		)
Subtotal - Adjustments to reconcile net income and operating cash flows to net income (loss) of consolidated VIE-RSO	42,360			(37,931		)
Non-cash incentive compensation to Manager	—			484
Elimination of intercompany activity	—			(484		)
Non-cash incentive compensation to Manager, after eliminations	—			—
Net cash (used in) provided by operating activities of consolidated VIE-RSO (excluding eliminations)	(9,862		)	66,832



	Nine Months Ended
	September 30,
	2014		2013
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of loans	(667,774	)	(555,051	)
Purchase of securities available-for-sale	(145,138	)	(120,599	)
Subtotal - Purchase of loans and securities by consolidated VIE-RSO, before eliminations	(812,912	)	(675,650	)
Eliminations	—		—
Subtotal - Purchase of loans and securities by consolidated VIE-RSO	(812,912	)	(675,650	)
Principal payments received on loans	315,778		487,606
Proceeds from sale of loans	76,314		314,112
Principal payments on securities available-for-sale	40,748		33,010
Proceeds from sale of securities available-for-sale	117,367		7,025
Principal payments received on loans - related parties	2,706		499
Subtotal - principal payments and proceeds from sales received by consolidated VIE-RSO, before eliminations	552,913		842,252

Decrease in restricted cash	18,328		30,079
Items included in "Other investing activity of consolidated VIE-RSO":
Investment in unconsolidated entity	8,911		(25,508	)
Acquisition of Moselle CLO S.A.	(30,433	)	—
Improvement of real estate held-for-sale	—		(404	)
Proceeds from sale of real estate held-for-sale	31,639		37,001
Distributions from investments in real estate	—		522
Improvements in investments in real estate held-for-sale	(225	)	(365	)
Investment in loans - related parties	(849	)	—
Purchase of furniture and fixtures	(69	)	(128	)
Acquisition of property and equipment	(362	)	—
Settlement of derivative instruments for investments	(19,245	)	—
Subtotal - Other investing activity of consolidated VIE-RSO, before eliminations	(10,633	)	11,118
Eliminations	(391	)	—
Subtotal - Other investing activity of consolidated VIE-RSO	(11,024	)	11,118
Net cash (used in) provided by investing activities of consolidated VIE-RSO (excluding eliminations)	(252,304	)	207,799



	Nine Months Ended
	September 30,
	2014			2013
CASH FLOWS FROM FINANCING ACTIVITIES:
Items included in "Net borrowings (repayments) of debt by consolidated VIE-RSO"
Proceeds from borrowings:
Repurchase agreements	49,234			143,203
Warehouse agreement borrowings	43,000			—
CDO borrowings	235,344			—
Senior Secured Revolving Credit Facility	35,500			—
Reissuance of debt	39,635			—
Payments on borrowings:
Collateralized debt obligations	(301,040		)	(450,437		)
Mortgage payable payments	—			(13,600		)
Warehouse agreement payments	(33,719		)	—
Subtotal - net borrowings (repayments) of debt by consolidated VIE-RSO	67,954			(320,834		)
Distributions paid on common stock	(77,636		)	(68,010		)
Elimination of dividends paid to RAI	1,716			—
Distributions paid on common stock of consolidated VIE-RSO, after eliminations	(75,920		)	(68,010		)
Net proceeds from issuances of common stock (net of offering costs of $0 and $4,228)	—			114,018
Net proceeds from dividend reinvestment and stock purchase plan (net of offering costs of $0 and $0)	25,416			19,092
Proceeds from issuance of 8.5% Series A redeemable preferred shares (net of offering costs of $203 and $3)	8,397			112
Proceeds from issuance of 8.25% Series B redeemable preferred shares (net of offering costs of $363 and $1,091)	27,940			51,057
Proceeds from issuance of 8.625% Series C redeemable preferred shares (net of offering costs of $4,005 and $0)	115,815			—
Subtotal - net proceeds from issuance of stock by consolidated VIE-RSO	177,568			184,279
Minority interest equity	12,676			2,200
Payment of debt issuance costs	(7,284		)	(1,740		)
Settlement of derivative instruments	(23		)	—
Payment of equity to third party sub-note holders	(2,183		)	(6,952		)
Distributions paid on preferred stock	(7,907		)	(4,389		)
Subtotal - Other consolidated financing activity of consolidated VIE-RSO, before eliminations	(4,721		)	(10,881		)
Eliminations	175			—
Subtotal - Other consolidated financing activity of consolidated VIE-RSO	(4,546		)	(10,881		)
Net cash provided by (used in) financing activities of consolidated VIE-RSO, excluding eliminations	163,165			(215,446		)
Net (decrease) increase in cash and cash equivalents	(99,001		)	59,185
Cash and cash equivalents, beginning of year of consolidated VIE-RSO	262,270			85,278
Cash and cash equivalents, end of period of consolidated VIE-RSO	$	163,269		$	144,463

Supplemental disclosures:
Interest expense paid in cash	$	26,782		$	28,391
Income taxes paid in cash	$	3,293		$	8,997

Summary of Significant Accounting Policies - RSO

Residential Mortgage Loans Held for Sale

RSO originates residential loans to be funded by permanent investors. RSO may sell or retain the right to service a loan. Mortgage loans held for sale are valued at the lower of cost or market, determined on an aggregate basis for each type of loan after the net effect of any hedging activities including interest rate lock commitments and freestanding loan-related derivatives. Market value is determined using sales commitments to permanent investors or on current market rates for loans of similar quality and type. To the extent the transfer of assets qualifies as a sale, the asset is derecognized and the gain or loss is recorded on the sale date. In the event the transfer of assets does not qualify as a sale, the transfer would be treated as a secured borrowing.

Reclassifications

Certain reclassifications have been made to RSO's 2013 consolidated financial statements to conform to the 2014 presentation.

Variable Interest Entities - RSO

RSO has evaluated its securities, loans, investments in unconsolidated entities, liabilities to subsidiary trusts issuing preferred securities (consisting of unsecured junior subordinated notes) and its CDOs in order to determine if the issuing entities qualify as VIEs. RSO monitors these investments and, to the extent it has determined that it owns a material investment in the current controlling class of securities of a particular entity, analyzes the entity for potential consolidation. RSO will continually analyze investments and liabilities, including when there is a reconsideration event, to determine whether such investments or liabilities are VIEs and whether such VIE should be consolidated or deconsolidated.

Consolidated VIEs (RSO is the primary beneficiary)

Based on RSO management’s analysis, RSO is the primary beneficiary of 10 VIEs at September 30, 2014: Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, Whitney CLO I, RCC CRE Notes 2013, RCC CRE 2014, and Moselle CLO. In performing the primary beneficiary analysis for Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013 and RCC CRE 2014, it was determined that the parties that have the power to direct the activities that are most significant to each of these VIEs and who have the right to receive benefits and the obligation to absorb losses that could potentially be significant to these VIEs, are a related party group. It was then determined that RSO was the party within that group that is more closely associated with each such VIE considering the design of the VIE, the principal-agency relationship between RSO and other members of the related-party group, and the relationship and significance of the activities of the VIE to RSO compared to the other members of the related-party group.

Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, Apidos CLO VIII, RREF CDO 2006-1, RREF CDO 2007-1, RCC CRE Notes 2013 and RCC CRE 2014 were formed on behalf of RSO to invest in real estate-related securities, commercial mortgage-backed securities ("CMBS"), property available-for-sale, bank loans, corporate bonds and asset-backed securities, and were financed by the issuance of debt securities. RSO's manager, a subsidiary of the Company, manages these entities on behalf of RSO. By financing these assets with long-term borrowings through the issuance of bonds, RSO seeks to generate attractive risk-adjusted equity returns and to match the term of its assets and liabilities. The primary beneficiary determination for each of these VIEs was made at each VIE’s inception and is continually assessed.

Moselle CLO is a European securitization in which RSO purchased a $40.0 million interest in the form of subordinate notes representing 100% of the Class 1 Subordinated Notes and 67.9% of the Class 2 Subordinated Notes in February 2014. The CLO is managed by an independent third-party and such collateral management activities were determined to be the activities that most significantly impact the economic performance of the CLO. Though neither RSO nor one of its related parties manage the CLO, due to certain unilateral kick-out rights within the collateral management agreement it was determined that RSO had the power to direct the activities that most significantly impact the economic performance of Moselle CLO. Having both the power to direct the activities that most significantly impact Moselle CLO and a financial interest that is expected to absorb both positive and negative variability in the CLO that could potentially be significant, RSO was determined to be the primary beneficiary of Moselle CLO and, therefore, consolidated the CLO.

Whitney CLO I is a securitization in which RSO acquired rights to manage the collateral assets held by the entity in February 2011. For a discussion on the primary beneficiary analysis for Whitney, see “- Unconsolidated VIEs - Resource Capital Asset Management,” below. For a discussion of RSO’s securitizations, see “Borrowings” below.

On July 9, 2014, RCC Residential together with the Company and certain of its employees acquired through RCM Global a portfolio of securities from JP Morgan for $23.5 million. The portfolio, is managed by the Company. RCC Residential contributed $15.0 million for a 63.8% membership interest. Each of the members of RCM Global will be allocated the revenue/expenses of RCM Global in accordance with its membership interest. RCM Global was determined not to be a VIE as there was sufficient equity at risk, it does not have disproportionate voting rights and its members have all of the following characteristics (1) the power to direct the activities (2) the obligation to absorb losses and (3) the right to receive residual returns. However, RSO consolidated RCM Global as a result of RSO's majority interest in it.

In September 2014, RSO contributed $17.5 million of capital to Pelium Capital, for an 80.4% interest. Pelium Capital is a specialized credit opportunity fund managed by the Company. RSO will receive 10% of the carried interest in the partnership for the first five years and can increase to 20% if RSO's capital contributions aggregate $40.0 million. The Company contributed securities of $2.8 million to the formation of Pelium Capital. Pelium Capital was determined not to be a VIE as there was sufficient equity at risk, it does not have disproportionate voting rights and its members have all of the following characteristics (1) the power to direct the activities (2) the obligation to absorb losses and (3) the right to receive residual returns. However, Pelium Capital was consolidated by RSO as a result of its majority ownership and RSO's unilateral kick-out rights held. The noncontrolling interest in this vehicle is owned by the Company.

For CLOs in which RSO does not own 100% of the subordinated notes, RSO imputes an interest rate using expected cash flows over the life of the CLO and records the third party's share of the cash flows as interest expense on RSO's consolidated statements of income.

RSO has exposure to losses on its securitizations to the extent of its subordinated debt and preferred equity interests in them. RSO is entitled to receive payments of principal and interest on the debt securities it holds and, to the extent revenues exceed debt service requirements and other expenses of the securitizations, distributions with respect to its preferred equity interests. As a result of consolidation, debt and equity interests RSO holds in these securitizations have been eliminated, and RSO’s consolidated balance sheets reflects both the assets held and debt issued by the securitizations to third parties and any accrued expense to third parties. RSO's operating results and cash flows include the gross amounts related to the securitizations' assets and liabilities as opposed to RSO's net economic interests in the securitizations. Assets and liabilities related to the securitizations are disclosed, in the aggregate, on RSO's consolidated balance sheets.

The creditors of RSO’s ten consolidated VIEs have no recourse to the general credit of RSO or the Company. However, RSO has in the past voluntarily supported two credits in one of its commercial real estate CDOs as the credits went through a restructuring in order to maximize their future cash flows. For the three and nine months ended September 30, 2014, RSO has provided financial support of $209,000 and $758,000, respectively. For the three and nine months ended September 30, 2013, RSO has provided $69,000 and $1.9 million of financial support, respectively. RSO has provided no other financial support to any other of its VIEs nor does it have any requirement to do so, although it may choose to do so in the future to maximize future cash flows on such investments by RSO. There are no explicit arrangements that obligate RSO to provide financial support to any of its consolidated VIEs.

The following table shows the classification and carrying value of assets and liabilities of RSO's consolidated VIEs as of September 30, 2014 (in thousands):



	Apidos I			Apidos III		Apidos Cinco		Apidos VIII		Whitney CLO I		RREF 2006-1		RREF 2007-1		RCC CRE Notes 2013		RCC CRE 2014			Moselle			Total
ASSETS
Restricted cash ⁽¹⁾	$	15,366		$	3,529	$	24,663	$	5	$	80	$	20	$	250	$	3,337	$	—		$	33,383		$	80,633
Investment securities available-for-sale, pledged as collateral, at fair value	3,452			3,947		11,313		—		—		11,359		67,784		—		—			12,521			110,376
Loans, pledged as collateral	9,896			87,750		274,442		—		—		128,369		204,978		267,963		349,381			83,009			1,405,788
Loans held for sale	35,740			364		570		—		—		—		—		—		—			—			36,674
Interest receivable	(268		)	443		959		—		—		2,471		2,015		1,114		1,332			—			8,066
Prepaid assets	6			7		28		—		—		100		76		—		—			—			217
Principal paydown receivable	—			—		—		—		—		25,803		8,297		—		—			—			34,100
Other assets	—			—		—		—		—		—		—		—		(12		)	—			(12		)
Total assets (2)	$	64,192		$	96,040	$	311,975	$	5	$	80	$	168,122	$	283,400	$	272,414	$	350,701		$	128,913		$	1,675,842

LIABILITIES
Borrowings	$	47,848		$	83,621	$	284,160	$	—	$	—	$	105,841	$	137,004	$	223,897	$	231,365		$	101,187		$	1,214,923
Accrued interest expense	218			46		289		—		—		44		99		172		123			289			1,280
Derivatives, at fair value	—			—		—		—		—		1,044		6,914		—		—			—			7,958
Accounts payable and other liabilities	22			48		25		195		—		11		1		—		10			(730		)	(418		)
Total liabilities	$	48,088		$	83,715	$	284,474	$	195	$	—	$	106,940	$	144,018	$	224,069	$	231,498		$	100,746		$	1,223,743


(1)	Includes $3.6 million available for reinvestment in certain of the securitizations.


(2)	Assets of each of the consolidated VIEs may only be used to settle the obligations of each respective VIE.

Unconsolidated VIEs (RSO is not the primary beneficiary, but has a variable interest)

Based on RSO management’s analysis, RSO is not the primary beneficiary of the VIEs discussed below since it does not have both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. Accordingly, the following VIEs are not consolidated in RSO’s financial statements as of September 30, 2014. RSO’s maximum exposure to risk for each of these unconsolidated VIEs is set forth in the “Maximum Risk Exposure,” column in the table below.

LEAF Commercial Capital, Inc. ("LEAF")

On November 16, 2011, RSO and LEAF Financial, Inc. ("LEAF Financial"), a subsidiary of the Company), together with Eos Partners, L.P., a private investment firm, and its affiliates ("Eos"), formed LEAF Commercial Capital, Inc. ("LEAF"). In exchange for its prior interests in its lease related investments, RSO received 31,341 shares of Series A Preferred Stock (the "Series A Preferred Stock"), 4,872 shares of newly issued 8% Series B Redeemable Preferred Stock (the "Series B Preferred Stock") and 2,364 shares of newly issued Series D Redeemable Preferred Stock (the "Series D Preferred Stock"), collectively representing, on a fully-diluted basis assuming conversion, a 26.7% interest in LEAF. RSO’s investment in LEAF was valued at $36.3 million based on a third-party valuation. RSO's fully-diluted interest in LEAF assuming conversion is 28.3%. RSO's investment in LEAF was recorded at $40.2 million and $41.0 million as of September 30, 2014 and December 31, 2013, respectively.

RSO determined that it is not the primary beneficiary of LEAF because it does not participate in any management or portfolio decisions, holds only two of six board positions, and only controls 28.3% of the voting rights in the entity. Furthermore, a third-party investor holds consent rights with respect to significant LEAF actions, including incurrence of indebtedness, consummation of a sale of the entity, liquidation or initiating a public offering.

Unsecured Junior Subordinated Debentures

RSO has a 100% interest in the common shares of Resource Capital Trust I (“RCT I”) and RCC Trust II (“RCT II”), valued at $1.5 million in the aggregate (or 3% of each trust). RCT I and RCT II were formed for the purposes of providing debt financing to RSO, as described below. RSO completed a qualitative analysis to determine whether or not it is the primary beneficiary of each of the trusts and determined that it was not the primary beneficiary of either trust because it does not have the power to direct the activities most significant to the trusts, which include the collection of principal and interest and protection of collateral through servicing rights. Accordingly, neither trust is consolidated into RSO’s consolidated financial statements.

RSO records its investments in RCT I and RCT II’s common shares as investments in unconsolidated trusts using the cost method and records dividend income when declared by RCT I and RCT II. The trusts each hold subordinated debentures for which RSO is the obligor in the amount of $25.8 million for RCT I and $25.8 million for RCT II. The debentures were funded by the issuance of trust preferred securities of RCT I and RCT II. RSO will continuously reassess whether it should be deemed to be the primary beneficiary of the trusts.

Resource Capital Asset Management CLOs

In February 2011, RSO purchased a company that managed bank loan assets through five CLOs. As a result, RSO became entitled to collect senior, subordinated and incentive management fees from these CLOs. The purchase price of $22.5 million resulted in an intangible asset that was allocated to each of the five CLOs and is amortized over the expected life of each CLO. The unamortized balance of the intangible asset was $9.9 million and $11.2 million at September 30, 2014 and December 31, 2013, respectively. RSO recognized fee income of $1.2 million and $4.0 million for the three and nine months ended September 30, 2014, respectively, and $1.2 million and $4.2 million for the three and nine months ended September 30, 2013, respectively. With respect to four of these CLOs, RSO determined that it does not hold a controlling financial interest and, therefore, is not the primary beneficiary. One of the CLOs was substantially liquidated in February 2013. With respect to the fifth CLO, Whitney CLO I, in October 2012, RSO purchased 66.6% of its preferred equity. Based upon that purchase, RSO determined that it did have an obligation to absorb losses and/or the right to receive benefits that could potentially be significant to Whitney CLO I and that a related party had the power to direct the activities that are most significant to the VIE. As a result, together with the related party, RSO had both the power to direct and the right to receive benefits and the obligation to absorb losses. It was then determined that, between RSO and the related party, RSO was the party within that group that was more closely associated with Whitney CLO I because of its preferred equity interest in Whitney CLO I. RSO, therefore, consolidated Whitney CLO I. In May 2013, RSO purchased additional equity in this CLO which increased its equity ownership to 68.3% of the outstanding preferred equity of the CLO. In September 2013, RSO substantially liquidated Whitney CLO I, and, as a result, all of the assets were sold.

The following table shows the classification, carrying value and maximum exposure to loss with respect to RSO’s unconsolidated VIEs as of September 30, 2014 (in thousands):



	Unconsolidated Variable Interest Entities
	LEAF		Unsecured Junior Subordinated Debentures			Resource Capital Asset Management CDOs		Total		Maximum Exposure to Loss
Investment in unconsolidated entities	$	40,157	$	1,548		$	—	$	41,705	41,705
Intangible assets	—		—			9,878		9,878		9,878
Total assets	40,157		1,548			9,878		51,583

Borrowings	—		51,154			—		51,154		N/A
Total liabilities	—		51,154			—		51,154		N/A
Net asset (liability)	$	40,157	$	(49,606	)	9,878		$	429	N/A

Other than RSO's commitments to fund its real estate joint ventures, there were no explicit arrangements or implicit variable interests that could require RSO to provide financial support to any of its unconsolidated VIEs.

Supplemental cash flow information - RSO

Supplemental disclosure of cash flow information is summarized for the periods indicated (in thousands):



	Nine Months Ended
	September 30,
	2014		2013
Non-cash financing activities include the following:
Distributions on common stock declared but not paid	$	26,629	$	25,447
Distributions on preferred stock declared but not paid	$	5,555	$	2,023
Issuance of restricted stock	$	890	$	242

Investment securities, trading - RSO

Structured notes are CLO debt securities collateralized by syndicated bank loans. The following table summarizes RSO's structured notes and residential mortgage-backed securities (“RMBS”) which are classified as investment securities, trading and carried at fair value (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2014
Structured notes, trading	$	10,821	$	317	$	(2,017	)	$	9,121
RMBS, trading	1,897		—		(1,831		)	66
Total	$	12,718	$	317	$	(3,848	)	$	9,187

December 31, 2013
Structured notes, trading	$	8,057	$	4,050	$	(1,000	)	$	11,107
RMBS, trading	1,919		—		(1,468		)	451
Total	$	9,976	$	4,050	$	(2,468	)	$	11,558

RSO sold two securities during the nine months ended September 30, 2014, for a realized gain of $2.5 million. RSO held 19 and eight investment securities, trading as of September 30, 2014 and December 31, 2013, respectively.

Investment securities available-for-sale - RSO

RSO pledges a portion of its CMBS as collateral against its borrowings under repurchase agreements and derivatives. CMBS that are accounted for as components of linked transactions are not reflected in the tables set forth in this note, as they are accounted for as derivatives.

Asset-backed securities ("ABS") are CLO debt securities collateralized by syndicated bank loans. The following table summarizes RSO's investment securities, including those pledged as collateral and classified as available-for-sale, which are carried at fair value (in thousands):



	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2014
CMBS	$	176,970	$	5,856	$	(7,510	)	$	175,316
RMBS	30,697		848		—			31,545
ABS	60,980		12,211		(1,435		)	71,756
Corporate bonds	2,413		12		(24		)	2,401
Total	$	271,060	$	18,927	$	(8,969	)	$	281,018

December 31, 2013
CMBS	$	185,178	$	7,570	$	(12,030	)	$	180,718
ABS	30,775		1,644		(394		)	32,025
Corporate bonds	2,517		16		(70		)	2,463
Total	$	218,470	$	9,230	$	(12,494	)	$	215,206

The following table summarizes the estimated maturities of RSO’s investment securities according to their estimated weighted average life classifications (in thousands, except percentages):



Weighted Average Life	Fair Value		Amortized Cost		Weighted Average Coupon
September 30, 2014
Less than one year	$	50,160	$	56,395	3.84	%
Greater than one year and less than five years	142,079		133,098		5.03	%
Greater than five years and less than ten years	44,913		38,301		5.32	%
Greater than ten years	43,866		43,266		5.40	%
Total	$	281,018	$	271,060	4.97	%

December 31, 2013
Less than one year	$	39,256	$	40,931	5.25	%
Greater than one year and less than five years	139,700		141,760		4.69	%
Greater than five years and less than ten years	26,526		25,707		1.10	%
Greater than ten years	9,724		10,072		7.90	%
Total	$	215,206	$	218,470	4.49	%

The contractual maturities of the CMBS investment securities available-for-sale range from October 2014 to December 2022. The contractual maturities of the ABS investment securities available-for-sale range from October 2014 to October 2050.

The contractual maturities of the corporate bond investment securities available-for-sale range from December 2015 to December 2019.

The following table shows the fair value, gross unrealized losses and number of securities aggregated by investment category and length of time, of those individual investment securities available-for-sale that have been in a continuous unrealized loss position during the periods specified (in thousands, except number of securities):



	Less than 12 Months						More than 12 Months						Total
	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities	Fair Value		Unrealized Losses			Number of Securities
As of September 30, 2014
CMBS	$	35,833	$	(580	)	18	$	27,065	$	(6,930	)	14	$	62,898	$	(7,510	)	32
ABS	13,792		(1,248		)	13	4,410		(187		)	7	18,202		(1,435		)	20
Corporate Bonds	1,439		(24		)	1	—		—			—	1,439		(24		)	1
Total temporarily impaired securities	$	51,064	$	(1,852	)	32	$	31,475	$	(7,117	)	21	$	82,539	$	(8,969	)	53

As of December 31, 2013
CMBS	$	52,012	$	(7,496	)	34	$	14,159	$	(4,534	)	10	$	66,171	$	(12,030	)	44
ABS	143		(1		)	1	6,692		(393		)	9	6,835		(394		)	10
Corporate Bonds	865		(70		)	1	—		—			—	865		(70		)	1
Total temporarily impaired securities	$	53,020	$	(7,567	)	36	$	20,851	$	(4,927	)	19	$	73,871	$	(12,494	)	55

The unrealized losses in the above table are considered to be temporary impairments due to market factors and are not reflective of credit deterioration.

RSO has no losses included in earnings due to other-than-temporary impairment charges during the three and nine months ended September 30, 2014, respectively. RSO had $255,000 and $276,000 of losses included in earnings due to the other-than-temporary impairment charges during the three and nine months ended September 30, 2013, respectively, on positions that supported RSO's CMBS investments.

The following table summarizes RSO's sales of investment securities available-for-sale, (in thousands, except number of securities):



	Positions Sold	Par Amount Sold		Realized Gain (Loss)
As of September 30, 2014
CMBS	3	$	15,970	$	480
ABS	3	$	6.947	$	3.484

As of December 31, 2013
CMBS	4	$	14,500	$	466
Corporate bonds	35	$	34,253	$	(474	)

The amounts above do not include redemptions. During the three and nine months ended September 30, 2014, RSO redeemed one and two corporate bond positions with a total par value of $1.0 million and $1.6 million, and recognized a gain of $48,000 and $48,000, respectively. During the three and nine months ended September 30, 2013, RSO had two corporate bond positions redeemed with a total par value of $3.5 million, and a recognized a gain of $11,000. During the three and nine months ended September 30, 2014, RSO had one ABS position redeemed with a total par value of $2.5 million, and recognized a gain of $25,500. During the three and nine months ended September 30, 2013, RSO had no ABS positions redeemed.

Changes in interest rates may also have an effect on the rate of principal prepayments and, as a result, prepayments on RSO’s investment portfolio. The aggregate discount (premium) recognized as of the periods indicated (in thousands) are:



	September 30, 2014		December 31, 2013
CMBS	$	3,609	$	6,583
RMBS	$	1,876	$	—
ABS	$	2,431	$	2,394
Corporate bonds	$	42	$	(68	)

Investments real estate - RSO

The table below summarizes RSO's investments in real estate (in thousands, except number of properties):



	As of December 31, 2013
	Book Value			Number of Properties
Multifamily property	$	22,107		1
Office property	10,273			1
Subtotal	32,380
Less: Accumulated depreciation	(2,602		)
Investments in real estate	$	29,778

During the three and nine months ended September 30, 2014, RSO made no acquisitions. RSO has two assets classified as property available-for-sale at September 30, 2014. RSO confirmed the intent and ability to sell its office property and multifamily property in their present condition during the three and nine months ended September 30, 2014. These properties qualified for held for sale accounting treatment upon meeting all applicable criteria on or prior to September 30, 2014, at which time RSO ceased recording depreciation and amortization. As such, the assets associated with the office property and multifamily property, with a carrying value of $9.6 million and $19.8 million, respectively, are separately classified and included in property available-for sale on RSO's consolidated balance sheets at September 30, 2014. However, the anticipated sale of these properties did not qualify for treatment as discontinued operations and, therefore, the operations for all periods presented continue to be classified within continuing operations on RSO's consolidated statements of income. RSO expects the sale of both properties to close by the end of the year. Pre-tax earnings recorded on the office property for the three and nine months ended September 30, 2014 were gains of $48,000 and $23,000, respectively, and losses of $72,000 and $225,000 for the three and nine months ended September 30, 2013, respectively. Pre-tax earnings recorded on the multifamily property for the three and nine months ended September 30, 2014 was income of $119,000 and a loss of $4,000, respectively, and a loss of $93,000 and a gain of $13,000 for the three and nine months ended September 30, 2013, respectively. RSO's hotel property was sold in April 2014 for a gain of $3.0 million and is recorded in (loss) gain on sale of real estate on RSO's consolidated statements of income.

During the three and nine months ended September 30, 2013, RSO made no acquisitions and sold one of its multifamily properties for a gain of $16.6 million, which was recorded in (loss) gain on sale of real estate on RSO's consolidated statements of income.

Loans held for investments - RSO

The following is a summary of RSO’s loans held for investment (in thousands):



Loan Description	Principal			Unamortized Discount ⁽¹⁾			Carrying Value ⁽²⁾
As of September 30, 2014
Commercial real estate loans:
Whole loans	$	1,028,393		$	(5,422	)	$	1,022,971
B notes	16,164			(57		)	16,107
Mezzanine loans	67,400			(95		)	67,305
Total commercial real estate loans	1,111,957			(5,574		)	1,106,383
Bank loans	642,419			(2,221		)	640,198
Residential mortgage loans, held for investment	2,825			—			2,825
Subtotal loans before allowances	1,757,201			(7,795		)	1,749,406
Allowance for loan loss	(4,507		)	—			(4,507		)
Total loans held for investment	1,752,694			(7,795		)	1,744,899
Bank loans held-for-sale	36,674			—			36,674
Residential mortgage loans held-for-sale	54,708			—			54,708
Total loans held-for-sale	91,382			—			91,382
Total loans	$	1,844,076		$	(7,795	)	$	1,836,281

As of December 31, 2013
Commercial real estate loans:
Whole loans	$	749,083		$	(3,294	)	$	745,789
B notes	16,288			(83		)	16,205
Mezzanine loans	64,417			(100		)	64,317
Total commercial real estate loans	829,788			(3,477		)	826,311
Bank loans	559,206			(4,033		)	555,173
Residential mortgage loans, held for investment	1,849			—			1,849
Subtotal loans before allowances	1,390,843			(7,510		)	1,383,333
Allowance for loan loss	(13,807		)	—			(13,807		)
Total loans held for investment	1,377,036			(7,510		)	1,369,526
Bank loans held-for-sale	6,850			—			6,850
Residential mortgage loans held-for-sale	15,066			—			15,066
Total loans held-for-sale	21,916			—			21,916
Total loans	$	1,398,952		$	(7,510	)	$	1,391,442

(1)

Amounts include deferred amendment fees of $133,000 and $216,000 and deferred upfront fees of $97,000 and $141,000 being amortized over the life of the bank loans as of September 30, 2014 and December 31, 2013, respectively. Amounts include loan origination fees of $5.6 million and $3.3 million and loan extension fees of $0 and $73,000 being amortized over the life of the commercial real estate loans as of September 30, 2014 and December 31, 2013, respectively.


(2)	Substantially all loans are pledged as collateral under various borrowings at September 30, 2014 and December 31, 2013, respectively.

At September 30, 2014 and December 31, 2013, approximately 33.1% and 39.0%, respectively, of RSO’s commercial real estate loan portfolio was concentrated in California; approximately 8.9% and 6.4%, respectively, in Arizona; and approximately 21.0% and 14.6%, respectively, in Texas. At September 30, 2014 and December 31, 2013, approximately 15.5% and 15.8%, respectively, of RSO’s bank loan portfolio was concentrated in the collective industry grouping of healthcare, education and childcare. At September 30, 2014, approximately 56.5% of RSO's residential mortgage loans were originated in Georgia, 6.1% in North Carolina, 8.7% in Utah, 5.5% in Alabama and 7.0% in Virginia. At December 31, 2013, approximately 66.0% of the Company's residential mortgage loans were originated in Georgia, 9.0% in North Carolina, 7.0% each in Tennessee and Virginia and 6.0% in Alabama.

At September 30, 2014, RSO’s bank loan portfolio including, loans held-for-sale, consisted of $676.4 million (net of allowance of $464,000) of floating rate loans, which bear interest ranging between the three month LIBOR plus 1.5%, and the three month LIBOR plus 15.0% with maturity dates ranging from December 2014 to February 2024.

At December 31, 2013, RSO’s bank loan portfolio including, loans held-for-sale, consisted of $558.6 million (net of allowance of $3.4 million) of floating rate loans, which bore interest ranging between the three month LIBOR plus 1.5%, and the three month LIBOR plus 10.5% with maturity dates ranging from January 2014 to December 2021.

The following is a summary of the weighted average remaining lives of RSO’s bank loans held for investment, at amortized cost and loans held-for-sale, at the lower of cost or market (in thousands):



	September 30, 2014		December 31, 2013
Less than one year	$	46,779	$	36,985
Greater than one year and less than five years	479,790		379,874
Five years or greater	150,303		145,164
	$	676,872	$	562,023

The following is a summary of RSO’s commercial real estate loans held for investment (in thousands):



Description	Quantity	Amortized Cost		Contracted Interest Rates	Maturity Dates ⁽³⁾
As of September 30, 2014
Whole loans, floating rate ^{(1) (4) (5)}	60	$	1,022,971	LIBOR plus 1.75% to LIBOR plus 15.00%	January 2015 to February 2019
B notes, fixed rate	1	16,107		8.68%	April 2016
Mezzanine loans, floating rate	1	12,544		LIBOR plus 15.32%	April 2016
Mezzanine loans, fixed rate ⁽⁶⁾	3	54,761		0.50% to 18.71%	September 2016 to September 2021
Total ⁽²⁾	65	$	1,106,383

As of December 31, 2013
Whole loans, floating rate ^{(1) (4)}	51	$	745,789	LIBOR plus 2.68% to LIBOR plus 12.14%	March 2014 to February 2019
B notes, fixed rate	1	16,205		8.68%	April 2016
Mezzanine loans, floating rate	1	12,455		LIBOR plus 15.32%	April 2016
Mezzanine loans, fixed rate ⁽⁶⁾	3	51,862		0.50% to 18.72%	September 2014 to September 2019
Total ⁽²⁾	56	$	826,311


(1)	Whole loans had $68.3 million and $13.7 million in unfunded loan commitments as of September 30, 2014 and December 31, 2013, respectively. These unfunded commitments are advanced as the borrowers formally request additional funding as permitted under the loan agreement and any necessary approvals have been obtained.


(2)	The total does not include an allowance for loan loss of $4.0 million and $10.4 million as of September 30, 2014 and December 31, 2013, respectively.


(3)	Maturity dates do not include possible extension options that may be available to the borrowers.


(4)	As of September 30, 2014, floating rate whole loans includes $4.0 million and $12.0 million mezzanine components of two whole loans, which have fixed rates of 15.0% and 12.0%, respectively.


(5)	Floating rate whole loans include a $799,000 junior mezzanine tranche of a whole loan that has a fixed rate of 10.0% as of September 30, 2014.


(6)	Fixed rate mezzanine loans include a mezzanine loan that was modified into two tranches, which both currently pay interest at 0.48%. In addition, the subordinate tranche accrues interest at LIBOR plus 18.50% which is deferred until maturity.

The following is a summary of the weighted average maturity of RSO’s commercial real estate loans, at amortized cost (in thousands):



Description	2014		2015		2016 and Thereafter		Total
As of September 30, 2014
B notes	$	—	$	—	$	16,107	$	16,107
Mezzanine loans	—		—		67,305		67,305
Whole loans	—		—		1,022,971		1,022,971
Total ⁽¹⁾	$	—	$	—	$	1,106,383	$	1,106,383

As of December 31, 2013
B notes	$	—	$	—	$	16,205	$	16,205
Mezzanine loans	5,711		—		58,606		64,317
Whole loans	—		17,949		727,840		745,789
Total ⁽¹⁾	$	5,711	$	17,949	$	802,651	$	826,311


(1)	Weighted average life of commercial real estate loans assumes full exercise of extension options available to borrowers.

The following table provides information as to the lien position status of RSO's consolidated bank loans, (in thousands):



	Amortized Cost
	Apidos I		Apidos III		Apidos Cinco		Whitney CLO I		Northport LLC (1)		Moselle		Total
As of September 30, 2014
Loans held for investment:
First lien loans	$	9,895	$	87,107	$	270,598	—		$	101,021	$	80,721	$	549,342
Second lien loans	—		—		3,604		—		83,614		2,201		89,419
Third lien loans	—		—		—		—		—		—		—
Defaulted first lien loans	—		—		—		—		—		—		—
Defaulted second lien loans	—		972		379		—		—		86		1,437
Total	9,895		88,079		274,581		—		184,635		83,008		640,198
First lien loans held-for-sale, at fair value	35,738		365		571		—		—		—		36,674
Total	$	45,633	$	88,444	$	275,152	—		$	184,635	$	83,008	$	676,872

As of December 31, 2013
Loans held for investment:
First lien loans	$	79,483	$	126,890	$	296,368	$	72	$	31,974	—		$	534,787
Second lien loans	—		—		1,139		—		7,805		—		8,944
Third lien loans	3,020		2,475		2,463		—		—		—		7,958
Defaulted first lien loans	1,206		1,124		486		—		—		—		2,816
Defaulted second lien loans	334		334		—		—		—		—		668
Total	84,043		130,823		300,456		72		39,779		—		555,173
First lien loans held-for-sale, at fair value	537		651		1,189		—		4,473		—		6,850
Total	$	84,580	$	131,474	$	301,645	$	72	$	44,252	—		$	562,023


(1)	In September 2014, Resource TRS LLC and RCC Commercial transferred all loans to Northport LLC. At December 31, 2013, Resource TRS LLC and RCC Commercial held a total of $34.0 million and $10.3 million of loans, respectively, at amortized cost.

The following is a summary of the allocation of the allowance for loan loss (in thousands, except percentages) by asset class:



Description	Allowance for Loan Loss		Percentage of Total Allowance
As of September 30, 2014
B notes	$	69	1.53%
Mezzanine loans	289		6.41%
Whole loans	3,685		81.76%
Bank loans	464		10.30%
Total	$	4,507

As of December 31, 2013
B notes	$	174	1.26%
Mezzanine loans	559		4.05%
Whole loans	9,683		70.13%
Bank loans	3,391		24.56%
Total	$	13,807

As of September 30, 2014, RSO had recorded an allowance for loan losses on loans held for investment of $4.5 million consisting of a $464,000 allowance on RSO’s bank loan portfolio and a $4.0 million allowance on RSO’s commercial real estate portfolio.

As of December 31, 2013, RSO had recorded an allowance for loan losses on loans held for investment of $13.8 million consisting of a $3.4 million allowance on RSO’s bank loan portfolio and a $10.4 million allowance on RSO’s commercial real estate portfolio.

Investments in unconsolidated entities - RSO

The following table shows RSO's investments in unconsolidated entities as of September 30, 2014 and December 31, 2013 and equity in net earnings (losses) of unconsolidated subsidiaries for the three and nine months ended September 30, 2014 and 2013 (in thousands):



						Equity in Net Earnings (Losses) of Unconsolidated Subsidiary
		Balance as of		Balance as of		For the three months ended		For the three months ended			For the three months ended			For the nine months ended
	Ownership %	September 30, 2014		December 31, 2013		September 30, 2014		September 30, 2013			September 30, 2014			September 30, 2013
Värde Investment Partners, L.P.	7.5%	$	654	$	674	$	—	$	6		$	(19	)	$	49
RRE VIP Borrower, LLC	3% to 5%	—		—		770		(521		)	2,506			(735		)
Investment in LCC Preferred Stock	28.3%	40,157		41,016		13		(346		)	(859		)	(378		)
Investment in CVC Global Credit Opportunities Fund ⁽¹⁾	29.57%	18,181		16,177		47		433			2,004			526
Investment in Life Care Funding⁽¹⁾	50.2%	—		1,530		—		(107		)	(75		)	(350		)
Investment in School Lane House ⁽⁴⁾		—		975		57		—			1,106			—
Subtotal		58,992		60,372		887		(535		)	4,663			(888		)
Investment in RCT I and II ⁽²⁾	3%	1,548		1,548		601		1,785			1,785			1,800
Investment in Preferred Equity⁽³⁾		—		7,149		—		332			410			821
Total		$	60,540	$	69,069	$	1,488	$	1,582		$	6,858		$	1,733


(1)	RSO began consolidating this investment during the first quarter of 2014. Ownership % represents ownership after consolidation.


(2)	For the three and nine months ended September 30, 2014 and 2013, these amounts are recorded in interest expense on RSO's consolidated statements of income.


(3)	For the three and nine months ended September 30, 2014 and 2013, these amounts are recorded in interest income on loans on RSO's consolidated statements of income.


(4)	Investment in School Lane House and preferred equity were sold as of September 30, 2014.

In January 2013, Long Term Care Conversion ("LTCC") invested $2.0 million into Life Care Funding, LLC ("LCF") for the purpose of originating and acquiring life settlement contracts. In February 2014, RSO invested an additional $1.4 million which resulted in the consolidation of LCF during the first quarter of 2014.

Financing receivables - RSO

The following tables show the allowance for loan losses and recorded investments in loans for the years indicated (in thousands):



	Commercial Real Estate Loans			Bank Loans			Residential Mortgage Loans		Loans Receivable-Related Party		Total
As of September 30, 2014
Allowance for Loan Losses:
Allowance for losses at January 1, 2014	$	10,416		$	3,391		$	—	$	—	$	13,807
(Recovery) provision for loan losses	(3,708		)	1,033			—		936		(1,739		)
Loans charged-off	(2,665		)	(3,960		)	—		—		(6,625		)
Allowance for losses at September 30, 2014	$	4,043		$	464		$	—	$	936	$	5,443
Ending balance:
Individually evaluated for impairment	$	—		$	464		$	—	$	936	$	1,400
Collectively evaluated for impairment	$	4,043		$	—		$	—	$	—	$	4,043
Loans acquired with deteriorated credit quality	$	—		$	—		$	—	$	—	$	—
Loans:
Ending balance:
Individually evaluated for impairment	$	165,960		$	2,340		$	—	$	5,108	$	173,408
Collectively evaluated for impairment⁽¹⁾	$	940,423		$	637,772		$	2,825	$	—	$	1,581,020
Loans acquired with deteriorated credit quality	$	—		$	86		$	—	$	—	$	86

As of December 31, 2013
Allowance for Loan Losses:
Allowance for losses at January 1, 2013	$	7,986		$	9,705		$	—	$	—	$	17,691
Provision for loan losses	2,686			334			—		—		3,020
Loans charged-off	(256		)	(6,648		)	—		—		(6,904		)
Allowance for losses at December 31, 2013	$	10,416		$	3,391		$	—	$	—	$	13,807
Ending balance:
Individually evaluated for impairment	$	4,572		$	2,621		$	—	$	—	$	7,193
Collectively evaluated for impairment	$	5,844		$	770		$	—	$	—	$	6,614
Loans acquired with deteriorated credit quality	$	—		$	—		$	—	$	—	$	—
Loans:
Ending balance: ⁽²⁾
Individually evaluated for impairment	$	194,403		$	3,554		$	—	$	6,966	$	204,923
Collectively evaluated for impairment	$	631,908		$	558,469		$	16,915	$	—	$	1,207,292
Loans acquired with deteriorated credit quality	$	—		$	—		$	—	$	—	$	—


(1)	Loan ending balance contains $83.0 million of loan value for which the fair value option has been elected. As such, no allowance for loan losses has been recognized for these loans.


(2)	Loan balances as of December 31, 2013 include loans held-for-sale.

Credit quality indicators

Bank Loans

RSO uses a risk grading matrix to assign grades to bank loans. Loans are graded at inception and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1-5 with 1 representing RSO’s highest rating and 5 representing its lowest rating. RSO also designates loans that are sold after the period end as held for sale at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales. RSO considers factors such as performance of the underlying company, liquidity, collectability of interest, enterprise valuation, default probability, ratings from rating agencies and industry dynamics in grading its bank loans.

Credit risk profiles of bank loans were as follows (in thousands):



	Rating 1		Rating 2		Rating 3		Rating 4		Rating 5		Held for Sale		Total
As of September 30, 2014
Bank loans	$	632,588	$	—	$	6,173	$	—	$	1,437	$	36,674	$	676,872

As of December 31, 2013
Bank loans	$	488,004	$	42,476	$	18,806	$	2,333	$	3,554	$	6,850	$	562,023

All of RSO’s bank loans were performing with the exception of two loans with an amortized cost of $1.4 million as of September 30, 2014. Due to the consolidation of Moselle CLO in February 2014, RSO acquired four loans with deteriorated credit quality with an amortized cost of $86,000 as of September 30, 2014. As of December 31, 2013, all of RSO’s bank loans were performing with the exception of three loans with an amortized cost of $3.6 million, one of which defaulted in 2012, one of which defaulted as of March 31, 2013, and one of which defaulted as of June 30, 2013.

Commercial Real Estate Loans

RSO uses a risk grading matrix to assign grades to commercial real estate loans. Loans are graded at inception and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1-4 with 1 representing RSO’s highest rating and 4 representing its lowest rating. RSO designates loans that are sold after the period ends at the lower of their fair market value or cost, net of any allowances and costs associated with the loan sales. In addition to the underlying performance of the loan collateral, RSO considers factors such as the strength of underlying sponsorship, payment history, collectability of interest, structural credit enhancements, market trends and loan terms in grading its commercial real estate loans.

Credit risk profiles of commercial real estate loans were as follows (in thousands):



	Rating 1		Rating 2		Rating 3		Rating 4		Total
As of September 30, 2014
Whole loans	$	990,471	$	32,500	$	—	$	—	$	1,022,971
B notes	16,107		—		—		—		16,107
Mezzanine loans	45,447		21,858		—		—		67,305
	$	1,052,025	$	54,358	$	—	$	—	$	1,106,383

As of December 31, 2013
Whole loans	$	680,718	$	32,500	$	32,571	$	—	$	745,789
B notes	16,205		—		—		—		16,205
Mezzanine loans	51,862		12,455		—		—		64,317
	$	748,785	$	44,955	$	32,571	$	—	$	826,311

All of RSO’s commercial real estate loans were current as of September 30, 2014 and December 31, 2013.

Residential Mortgage Loans

Residential mortgage loans are reviewed periodically for collectability in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing underlying conditions. RSO also designates loans that are sold after the period ends as held for sale at the lower of their fair market value or cost.

Loans Receivable - Related Party

RSO recorded a $936,000 allowance for loan loss during the nine months ended September 30, 2014 on a related party loan due to defaults on two individually significant credits in the related party fund holding the loan that caused an unplanned cash flow deficiency.

Loan Portfolios Aging Analysis

The following table shows the loan portfolio aging analysis as of the dates indicated at cost basis (in thousands):



	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Total Loans > 90 Days and Accruing
As of September 30, 2014
Whole loans	$	—	$	—	$	—	$	—	$	1,022,971	$	1,022,971	$	—
B notes	—		—		—		—		16,107		16,107		—
Mezzanine loans	—		—		—		—		67,305		67,305		—
Bank loans ^{(1) (2)}	774		—		1,652		2,426		674,446		676,872		—
Residential mortgage loans ⁽³⁾	—		251		117		368		57,165		57,533		—
Loans receivable-related party	—		—		—		—		5,108		5,108		—
Total loans	$	774	$	251	$	1,769	$	2,794	$	1,843,102	$	1,845,896	$	—

As of December 31, 2013
Whole loans	$	—	$	—	$	—	$	—	$	745,789	$	745,789	$	—
B notes	—		—		—		—		16,205		16,205		—
Mezzanine loans	—		—		—		—		64,317		64,317		—
Bank loans ⁽²⁾	—		—		3,554		3,554		558,469		562,023		—
Residential mortgage loans ⁽³⁾	234		91		268		593		16,322		16,915		—
Loans receivable-related party	—		—		—		—		6,966		6,966		—
Total loans	$	234	$	91	$	3,822	$	4,147	$	1,408,068	$	1,412,215	$	—


(1)	Contains loans for which the fair value method was elected with an unpaid principal balance of $4.5 million with a fair value of $86,000 at September 30, 2014.


(2)	Contains $36.7 million and $6.9 million of bank loans held for sale at September 30, 2014 and December 31, 2013, respectively.


(3)	Contains $54.7 million and $15.1 million of residential mortgage loans held for sale at September 30, 2014 and December 31, 2013, respectively.

Impaired Loans

The following tables show impaired loans as of the dates indicated (in thousands):



	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
As of September 30, 2014
Loans without a specific valuation allowance:
Whole loans	$	127,888	$	127,888	$	—		$	126,591	$	11,882
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	2,543
Bank loans	$	86	$	86	$	—		$	86	$	—
Residential mortgage loans	$	2,825	$	2,825	$	—		$	2,825	$	107
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—
Loans with a specific valuation allowance:
Whole loans	$	—	$	—	$	—		$	—	$	—
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	2,340	$	2,340	$	(464	)	$	287	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	3,929	$	3,929	$	(936	)	$	4,831	$	221

Total:
Whole loans	$	127,888	$	127,888	$	—		$	126,591	$	11,882
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		2,543
Bank loans	2,426		2,426		(464		)	373		—
Residential mortgage loans	2,825		2,825		—			2,825		107
Loans receivable - related party	3,929		3,929		(936		)	4,831		221
	$	175,140	$	175,140	$	(1,400	)	$	172,692	$	14,753



	Recorded Balance		Unpaid Principal Balance		Specific Allowance			Average Investment in Impaired Loans		Interest Income Recognized
As of December 31, 2013
Loans without a specific valuation allowance:
Whole loans	$	130,759	$	130,759	$	—		$	123,495	$	8,439
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	38,072	$	38,072	$	—		$	38,072	$	1,615
Bank loans	$	—	$	—	$	—		$	—	$	—
Residential mortgage loans	$	315	$	268	$	—		$	—	$	—
Loans receivable - related party	$	5,733	$	5,733	$	—		$	—	$	—
Loans with a specific valuation allowance:
Whole loans	$	25,572	$	25,572	$	(4,572	)	$	24,748	$	1,622
B notes	$	—	$	—	$	—		$	—	$	—
Mezzanine loans	$	—	$	—	$	—		$	—	$	—
Bank loans	$	3,554	$	3,554	$	(2,621	)	$	—	$	—
Residential mortgage loans	$	—	$	—	$	—		$	—	$	—
Loans receivable - related party	$	—	$	—	$	—		$	—	$	—

Total:
Whole loans	$	156,331	$	156,331	$	(4,572	)	$	148,243	$	10,061
B notes	—		—		—			—		—
Mezzanine loans	38,072		38,072		—			38,072		1,615
Bank loans	3,554		3,554		(2,621		)	—		—
Residential mortgage loans	315		268		—			—		—
Loans receivable - related party	5,733		5,733		—			—		—
	$	204,005	$	203,958	$	(7,193	)	$	186,315	$	11,676

Troubled- Debt Restructurings

The following tables show troubled-debt restructurings in RSO's loan portfolio (in thousands):



	Number of Loans	Pre-Modification Outstanding Recorded Balance		Post-Modification Outstanding Recorded Balance
Three Months Ended September 30, 2014
Whole loans	2	$	16,039	$	16,039
B notes	—	—		—
Mezzanine loans	1	38,072		38,072
Bank loans	—	—		—
Loans receivable - related party	—	—		—
Total loans	3	$	54,111	$	54,111

Three Months Ended September 30, 2013
Whole loans	2	$	48,374	$	52,716
B notes	—	—		—
Mezzanine loans	—	—		—
Bank loans	—	—		—
Lease receivables	—	—		—
Loans receivable - related party	—	—		—
Total loans	2	$	48,374	$	52,716

Nine Months Ended September 30, 2014
Whole loans	2	$	16,039	$	16,039
B notes	—	—		—
Mezzanine loans	1	38,072		38,072
Bank loans	—	—		—
Loans receivable - related party	—	—		—
Total loans	3	$	54,111	$	54,111

Nine Months Ended September 30, 2013
Whole loans	4	$	104,702	$	109,044
B notes	—	—		—
Mezzanine loans	—	—		—
Bank loans	—	—		—
Lease receivables	—	—		—
Loans receivable - related party	1	6,592		6,592
Total loans	5	$	111,294	$	115,636

As of September 30, 2014 and 2013, there were no troubled-debt restructurings that subsequently defaulted.

Intangible assets - RSO

RSO expects to record amortization expense on intangible assets of approximately $2.1 million for the year ended December 31, 2014, $2.0 million for the year ended December 31, 2015, $1.8 million for the years ended December 31, 2016 and 2017 and $1.6 million for the year ended December 31, 2018. The weighted average amortization period was 6.8 years and 7.7 years at September 30, 2014 and December 31, 2013, respectively and the accumulated amortization was $11.6 million and $12.5 million at September 30, 2014 and December 31, 2013, respectively.

The following table summarizes intangible assets (in thousands).



	Asset Balance		Accumulated Amortization			Net Asset
As of September 30, 2014
Investment in RCAM	$	21,213	$	(11,325	)	$	9,888
Investment in PCM:
Wholesale or correspondent relationships	600		(234		)	366
Total intangible assets	$	21,813	$	(11,559	)	$	10,254

As of December 31, 2013
Investment in RCAM	$	21,213	$	(9,980	)	$	11,233
Investments in real estate:
In-place leases	2,461		(2,430		)	31
Above market leases	29		(29		)	—
Investment in PCM:
Wholesale or correspondent relationships	600		(42		)	558
Total intangible assets	$	24,303	$	(12,481	)	$	11,822

For the three and nine months ended September 30, 2014, RSO recognized $1.2 million and $4.0 million, respectively, of fee income related to the investment in RCAM. For the three and nine months ended September 30, 2013, RSO recognized $1.2 million and $4.2 million, respectively, of fee income related to the investment in RCAM.

Borrowings - RSO

RSO historically has financed the acquisition of its investments, including investment securities, loans and lease receivables, through the use of secured and unsecured borrowings in the form of CDOs, CLOs securitized notes, repurchase agreements, secured term facilities, warehouse facilities and trust preferred securities issuances. Certain information with respect to RSO’s borrowings is summarized in the following table (in thousands, except percentages):



	Outstanding Borrowings		Unamortized Issuance Costs and Discounts		Principal Outstanding		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity	Value of Collateral
As of September 30, 2014
RREF CDO 2006-1 Senior Notes	$	105,841	$	1	$	105,842	1.93	%	31.9 years	$	139,267
RREF CDO 2007-1 Senior Notes	137,004		242		137,246		1.06	%	32.0 years	273,839
RCC CRE Notes 2013	223,897		2,943		226,840		2.10	%	14.2 years	269,371
RCC CRE 2014	231,365		3,979		235,344		1.44	%	17.6 years	347,511
Apidos CDO I Senior Notes	47,848		—		47,848		2.54	%	2.8 years	63,956
Apidos CDO III Senior Notes	83,621		—		83,621		1.11	%	6.0 years	94,516
Apidos Cinco CDO Senior Notes	284,160		358		284,518		0.74	%	5.6 years	303,385
Moselle CLO S.A. Senior Notes, at fair value (6)	94,904		—		94,904		1.19	%	5.3 years	127,312
Moselle CLO S.A. Securitized Borrowings, at fair value (1)	5,212		—		5,212		1.19	%	N/A	—
Unsecured Junior Subordinated Debentures (2)	51,154		394		51,548		0.04	%	22.1 years	—
6.0% Convertible Senior Notes	107,979		7,021		115,000		6.00	%	4.2 years	—
CRE - Term Repurchase Facilities (3)	55,280		654		55,934		2.32	%	20 days	83,133
CMBS - Term Repurchase Facility (4)	21,559		—		21,559		1.43	%	23 days	26,540
RMBS - Term Repurchase Facility (5)	22,705		55		22,760		1.15	%	1 day	28,533
Residential Mortgage Financing Agreements	48,885		—		48,885		3.56	%	278 days	68,417
CMBS - Short Term Repurchase Agreements	36,633		—		36,633		1.53	%	23 days	47,224
Senior Secured Revolving Credit Agreement (7)	32,911		2,589		35,500		4.13	%	3 years	184,167
Total	$	1,590,958	$	18,236	$	1,609,194	1.98%		12.2 years	$	2,057,171



	Outstanding Borrowings		Unamortized Issuance Costs and Discounts		Principal Outstanding		Weighted Average Borrowing Rate		Weighted Average Remaining Maturity	Value of Collateral
As of December 31, 2013
RREF CDO 2006-1 Senior Notes	$	94,004	$	205	$	94,209	1.87	%	32.6 years	$	169,115
RREF CDO 2007-1 Senior Notes	177,837		719		178,556		0.84	%	32.8 years	318,933
RCC CRE Notes 2013	256,571		4,269		260,840		2.03	%	15.0 years	305,586
Apidos CDO I Senior Notes	87,131		—		87,131		1.68	%	3.6 years	103,736
Apidos CDO III Senior Notes	133,209		117		133,326		0.88	%	6.7 years	145,930
Apidos Cinco CDO Senior Notes	321,147		853		322,000		0.74	%	6.4 years	342,796
Whitney CLO I Securitized Borrowings ⁽¹⁾	440		—		440		—	%	N/A	885
Unsecured Junior Subordinated Debentures ⁽²⁾	51,005		543		51,548		4.19	%	22.8 years	—
6.0% Convertible Senior Notes	106,535		8,465		115,000		6.00	%	4.9 years	—
CRE - Term Repurchase Facilities ⁽³⁾	29,703		1,033		30,736		2.67	%	21 days	48,186
CMBS - Term Repurchase Facility ⁽⁴⁾	47,601		12		47,613		1.38	%	21 days	56,949
Residential Mortgage Financing Agreements	14,627		—		14,627		4.24	%	56 days	16,487
Total	$	1,319,810	$	16,216	$	1,336,026	1.87	%	13.1 years	$	1,508,603


(1)	The securitized borrowings are collateralized by the same assets as the Moselle CLO Securitized Borrowings, the Apidos CLO VIII Senior Notes and the Whitney CLO I securitized borrowings, respectively.


(2)	Amount represents junior subordinated debentures issued to RCT I and RCT II in May 2006 and September 2006, respectively.


(3)	Amounts also include accrued interest costs of $43,000 and $26,000 related to CRE repurchase facilities as of September 30, 2014 and December 31, 2013, respectively.


(4)	Amounts also include accrued interest costs of $23,000 and $22,000 related to CMBS repurchase facilities as of September 30, 2014 and December 31, 2013, respectively. Amounts do not reflect CMBS repurchase agreement borrowings that are components of linked transactions.


(5)	Amount also includes accrued interest costs of $21,000 related to RMBS repurchase facilities as of September 30, 2014.


(6)	The fair value option has been elected for the borrowings associated with Moselle CLO. As such, the outstanding borrowings and principal outstanding amounts are states at fair value. The unpaid principal amounts of these borrowings were $95.0 million at September 30, 2014.


(7)	Weighted average borrowing rate included $25.0 million borrowed at the JP Morgan Chase Bank prime rate to fund the closing on investments. These borrowings were subsequently converted to the lower contracted LIBOR rate and began accruing interest at 2.66% as of October 1, 2014.

Securitizations



Securitization	Closing Date	Maturity Dates	Reinvestment Period End	Total Note Paydowns as of September 30, 2014
				(in millions)
RREF CDO 2006-1 Senior Notes	August 2006	August 2046	September 2011	$	117.1
RREF CDO 2007-1 Senior Notes	June 2007	September 2046	June 2012	$	129.8
RCC CRE Notes 2013	December 2013	December 2028	N/A	$	34.0
RCC CRE 2014	July 2014	April 2032	N/A	$	—
Apidos CDO I Senior Notes	August 2005	July 2017	July 2011	$	271.7
Apidos CDO III Senior Notes	May 2006	September 2020	June 2012	$	178.9
Apidos Cinco CDO Senior Notes	May 2007	May 2020	May 2014	$	36.3
Moselle CLO S.A. Senior Notes	October 2005	January 2020	January 2012	$	68.6
Moselle CLO S.A. Securitized Borrowings	October 2005	January 2020	January 2012	$	—

The investments held by RSO's securitizations have collateralized the debt issued by the securitizations and, as a result, are not available to RSO, its creditors, or stockholders. All senior notes purchased and retained by RSO as of September 30, 2014 eliminate in the RSO consolidation.

RCC CRE 2014

In July 2014, RSO closed RCC CRE 2014, a $353.9 million CRE securitization transaction that provided financing for transitional commercial real estate loans. The investments held by RCC CRE 2014 securitized the debt it issued and, as a result, the investments are not available to RSO, its creditors or stockholders. RCC CRE 2014 issued a total of $235.3 million of senior notes at par to unrelated investors. RCC Real Estate purchased 100% of the Class C senior notes (rated B2:Moody's) for $17.7 million. In addition, RREF 2014-CRE2 Investor, LLC, a subsidiary of RCC Real Estate, purchased a $100.9 million equity interest representing 100% of the outstanding preference shares. The senior notes purchased by RCC Real Estate are subordinated in right of payment to all other senior notes issued by RCC CRE 2014, but are senior in right of payment to the preference shares. The equity interest is subordinated in right of payment to all other securities issued by RCC CRE 2014. There is no reinvestment period for RCC CRE 2014, which will result in the sequential paydown of notes as underlying collateral matures and paydown.

At closing, the senior notes issued to investors by RCC CRE 2014 consisted of the following classes: (i) $196.4 million of Class A notes bearing interest at one-month LIBOR plus1.05%; (ii) $38.9 million of Class B notes bearing interest at one-month LIBOR plus 2.5%; and (iii) $17.7 million of Class C notes bearing interest at one-month LIBOR plus 4.25%. All of the notes issued mature in April 2032, although RSO has the right to call the notes anytime after July 2016 until maturity. The weighted average interest rate on all notes issued to outside investors was 1.44% at September 30, 2014.

Moselle CLO S.A.

In February 2014, RSO purchased 100% of the Class 1 Subordinated Notes and 67.9% of the Class 2 Subordinated Notes, which represented 88.6% of the subordinated notes Moselle CLO. Due to RSO's economic interest combined with its contractual, unilateral kick-out rights acquired upon its purchase of a majority of the subordinate notes, RSO determined that it had a controlling financial interest and consolidated Moselle CLO. The notes purchased by RSO are subordinated in right of payment to all other notes issued by Moselle CLO.

The balances of the senior notes issued to investors when RSO acquired a controlling financial interest in February 2014 were as follows: (i) €24.9 million of Class A-1E notes bearing interest at LIBOR plus 0.25%; (ii) $24.9 million of Class A-1L notes bearing interest at LIBOR plus 0.25%; (iii) €10.3 million of Class A-1LE notes bearing interest at LIBOR plus 0.31%; (iv) $10.3 million of Class A-1LE USD notes bearing interest at LIBOR plus 0.31% (v) €13.8 million of Class A-2E notes bearing interest at LIBOR plus 0.40%; (vi) $13.8 million of Class A-2L notes bearing interest at LIBOR plus 0.40%; (vii) €6.8 million of Class A-3E notes bearing interest at LIBOR plus 0.70%; (viii) $6.8 million of Class A-3L notes bearing interest at LIBOR plus 0.75%; (ix) €16.0 million of Class B-1E notes bearing interest at LIBOR plus 1.80%; and (x) $16.0 million of Class B-1L notes bearing interest at LIBOR plus 1.85%.

All notes issued mature on January 6, 2020. RSO has the right to call the notes anytime after January 6, 2010 until maturity. The weighted average interest rate on all notes was 1.19% at September 30, 2014.

Repurchase and Mortgage Finance Facilities

Borrowings under the repurchase and mortgage finance facilities agreements were guaranteed by RSO or one of its subsidiaries. The following table sets forth certain information with respect to RSO's borrowings is summarized in the following table (dollars in thousands):



	September 30, 2014						December 31, 2013
	Outstanding Borrowings		Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate	Outstanding Borrowings			Value of Collateral		Number of Positions as Collateral	Weighted Average Interest Rate
CMBS Term Repurchase Facility
Wells Fargo Bank ⁽¹⁾	$	21,559	$	26,540	30	1.43%	$	47,601		$	56,949	44	1.38%

CRE Term Repurchase Facilities
Wells Fargo Bank ⁽²⁾	47,704		71,822		4	2.21%	30,003			48,186		8	2.67%
Deutsche Bank AG ⁽³⁾	7,576		11,311		1	3.03%	(300		)	—		—	—%

Short-Term Repurchase Agreements - CMBS
Deutsche Bank Securities, LLC	25,575		29,529		8	1.47%	—			—		—	—%
Wells Fargo Securities, LLC	11,058		17,695		1	1.66%	—			—		—	—%

RMBS Term Repurchase Facility
Wells Fargo Bank ⁽⁴⁾	22,705		28,533		6	1.15%	—			—		—	—%

Residential Mortgage Financing Agreements
New Century Bank	16,526		17,831		94	3.45%	11,916			13,089		74	4.17%
ViewPoint Bank, NA	4,395		6,079		22	2.78%	2,711			3,398		17	4.58%
Wells Fargo Bank	27,963		44,508		66	3.75%	—			—		—	—%
Totals	$	185,061	$	253,848			$	91,931		$	121,622


(1)	The Wells Fargo CMBS term facility borrowing includes zero and $12,000 of deferred debt issuance costs as of September 30, 2014 and December 31, 2013, respectively.


(2)	The Wells Fargo CRE term repurchase facility borrowing includes $260,000 and $732,000 of deferred debt issuance costs as of September 30, 2014 and December 31, 2013, respectively.


(3)	The Deutsche Bank term repurchase facility includes $395,000 and $300,000 of deferred debt issuance costs as of September 30, 2014 and December 31, 2013, respectively.


(4)	The Wells Fargo RMBS term repurchase facility includes $55,000 of deferred debt issuance costs as of September 30, 2014.

The assets in the following table are accounted for as linked transactions. These linked repurchase agreements are not included in borrowings on RSO's consolidated balance sheets.



	September 30, 2014						December 31, 2013
	Borrowings Under Linked Transactions ⁽¹⁾		Value of Collateral Under Linked Transactions		Number of Positions as Collateral Under Linked Transactions	Weighted Average Interest Rate of Linked Transactions	Borrowings Under Linked Transactions ⁽¹⁾		Value of Collateral Under Linked Transactions		Number of Positions as Collateral Under Linked Transactions	Weighted Average Interest Rate of Linked Transactions
CMBS Term Repurchase Facility
Wells Fargo Bank	$	5,153	$	6,736	7	1.66%	$	6,506	$	8,345	7	1.65%

CRE Term Repurchase Facility
Wells Fargo Bank	—		—		—	—%	—		—		—	—%

Short-Term Repurchase Agreements - CMBS
JP Morgan Securities, LLC	—		—		—	—%	17,020		24,814		4	0.99%
Wells Fargo Securities, LLC	4,146		6,262		2	1.37%	21,969		30,803		9	1.19%
Deutsche Bank Securities, LLC	20,437		30,869		9	1.46%	18,599		29,861		9	1.43%
Totals	$	29,736	$	43,867			$	64,094	$	93,823

The following table shows information about the amount at risk under the repurchase facilities (dollars in thousands):



	Amount at Risk⁽¹⁾		Weighted Average Maturity in Days	Weighted Average Interest Rate
September 30, 2014
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association ⁽²⁾	$	7,353	20	1.43%

RMBS Term Repurchase Facility
Wells Fargo Bank, National Association	$	5,233	1	1.15%

CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	23,677	20	2.21%
Deutsche Bank Securities, LLC	$	3,266	20	3.03%

Short-Term Repurchase Agreements - CMBS
JP Morgan Securities, LLC ⁽³⁾	$	—	0	—%
Wells Fargo Securities, LLC	$	23,677	8	1.66%
Deutsche Bank Securities, LLC	$	3,326	29	1.47%

Residential Mortgage Financing Agreements
New Century Bank	$	17,016	334	3.45%
View Point Bank, NA	$	4,485	91	2.78%
Wells Fargo Bank	$	32,494	275	3.75%

December 31, 2013
CMBS Term Repurchase Facility
Wells Fargo Bank, National Association ⁽²⁾	$	10,796	21	1.38%

CRE Term Repurchase Facilities
Wells Fargo Bank, National Association	$	20,718	21	2.67%

Short-Term Repurchase Agreements - CMBS
JP Morgan Securities, LLC ⁽³⁾	$	7,882	11	0.99%
Wells Fargo Securities, LLC	$	8,925	2	1.19%
Deutsche Bank Securities, LLC	$	11,418	22	1.43%


(1)	Equal to the estimated fair value of securities or loans sold, plus accrued interest income, minus the sum of repurchase agreement liabilities plus accrued interest expense.


(2)	$5.2 million and $6.5 million of linked repurchase agreement borrowings are being included as derivative instruments as of September 30, 2014 and December 31, 2013, respectively.


(3)	There are no linked repurchase agreement borrowings being included as derivative instruments as of September 30, 2014. As of December 31, 2013 $17.0 million of linked repurchase agreement borrowings were being included as derivative instruments.

RMBS - Term Repurchase Facility

In June 2014, RSO's wholly-owned subsidiaries, RCC Resi Portfolio and RCC Resi TRS (the “Sellers”) entered into a master repurchase and securities contract (the “2014 Facility”) with Wells Fargo. Under the 2014 Facility, from time to time the parties may enter into transactions in which the Sellers and Wells Fargo agree to transfer from the Sellers to Wells Fargo all of their right, title and interest to certain residential mortgage backed securities and other assets against the transfer of funds by Wells Fargo to the Sellers, with a simultaneous agreement by Wells Fargo to transfer back to the Sellers such assets at a date certain or on demand, against the transfer of funds from the Sellers to Wells Fargo. The maximum amount of the 2014 Facility is $285.0 million which has an original one year term with a one year option to extend, and a maximum interest rate of 1.45% plus a 4.00% pricing margin. The 2014 Facility has a current maturity date of June 22, 2015.

The 2014 Facility contains customary events of default, including payment defaults, breaches of covenants and/or certain representations and warranties, cross-defaults, guarantor defaults, and the institution of bankruptcy or insolvency proceedings that remain unstayed. The remedies for such events of default are also customary for this type of transaction and include the acceleration of all obligations of the Sellers to repay the purchase price for purchased assets.

The 2014 Facility also contains margin call provisions relating to a decline in the market value of a security. Under these circumstances, Wells Fargo may require the Sellers to transfer cash in an amount sufficient to eliminate any margin deficit resulting from such a decline.

Under the terms of the 2014 Facility and pursuant to a guarantee agreement dated June 20, 2014 (the “2014 Guaranty”), RSO agreed to unconditionally and irrevocably guarantee to Wells Fargo the prompt and complete payment and performance of (a) all payment obligations owing by the Sellers to Wells Fargo under or in connection with the 2014 Facility and any other governing agreements and any and all extensions, renewals, modifications, amendments or substitutions of the foregoing; (b) all expenses, including, without limitation, reasonable attorneys' fees and disbursements, that are incurred by Wells Fargo in the enforcement of any of the foregoing or any obligation of the registrant; and (c) any other obligations of the Sellers with respect to Wells Fargo under each of the governing documents. The 2014 Guaranty includes covenants that, among other things, limit the RSO's leverage and debt service ratios and require maintenance of certain levels of cash and net worth. Sellers and RSO were in compliance with all financial debt covenants under the 2014 Facility and 2014 Guaranty as of September 30, 2014.

CRE - Term Repurchase Facilities

On July 19, 2013, RCC Real Estate's wholly owned subsidiary, RCC Real Estate SPE 5 ("SPE 5"), entered into a master repurchase and securities agreement (the "DB Facility") with Deutsche Bank AG, Cayman Islands Branch ("DB") to finance the origination of commercial real estate loans. The DB Facility has a maximum amount of $200.0 million and an initial 12 month term, that ended on July 19, 2014. RSO paid an extension fee of 0.25% of the maximum facility amount to exercise the first of two one-year extensions at the option of SPE 5. The facility's current termination date is July 19, 2015. RSO guaranteed SPE 5's performance of its obligations under the DB Facility.

Residential Mortgage Financing Agreements

PCM has a master repurchase agreement with New Century Bank d/b/a Customer's Bank ("New Century") to finance the acquisition of residential mortgage loans. The facility has a maximum amount of $30.0 million and a termination date of August 30, 2015, which was amended from the original terms over the course of seven amendments.

At June 30, 2014, PCM received a waiver from ViewPoint Bank, NA on a covenant that requires PCM to maintain consolidated net income of at least one dollar for the preceding twelve month period and not allow PCM's consolidated net income to be a negative number for three consecutive months. The waiver removed all existing defaults and waived the net income covenant requirement until September 30, 2014. PCM was in compliance with all other financial covenant requirements under the agreement as of September 30, 2014.

In July 2014, PCM entered into a master repurchase agreement with Wells Fargo Bank, NA ("Wells Fargo") to finance the acquisition of residential mortgage loans. The Wells Fargo facility contains provisions that provide Wells Fargo with certain rights if certain credit events have occurred with respect to one or more assets financed on the Wells Fargo facility to either require PCM to repay a portion of the advance on such asset(s) or repay such advance in full (by repurchase of such asset(s)). Depending on the nature of the credit event, such repayment may be required notwithstanding the availability of interest and principal payments from assets financed on the Wells Fargo facility, or may only be required to the extent of the availability of such payments. The facility has a maximum amount of $75.0 million and a termination date of July 2, 2015.

The Wells Fargo facility contains events of default (subject to certain materiality thresholds and grace periods) customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change in the nature of PCM's business as a mortgage banker as presently conducted; breaches of covenants and/or certain representations and warranties; performance defaults by PCM; and a judgment in an amount greater than 250,000 against PCM. The remedies for such events of default are also customary for this type of transaction and include the acceleration of the principal amount outstanding under the Wells Fargo facility and the liquidation by Wells Fargo of assets then subject to the Wells Fargo facility.

At September 30, 2014, PCM received a waiver from Wells Fargo Bank, NA on covenants that require PCM to maintain a combined loan-to-value ratio of at least 75% and a minimum adjusted tangible net worth of $30.0 million. The waiver removed all existing defaults and waived the required covenants as of September 30, 2014. PCM is in compliance with all other covenants under the agreement as of September 30, 2014.

Senior Secured Revolving Credit Facility

Effective September 18, 2014, RSO, through an indirect wholly-owned subsidiary, Northport LLC, closed a $110.0 million syndicated senior secured revolving credit facility with JP Morgan as the agent bank. On September 30, 2014, the accordion feature of the facility was exercised to bring the facility capacity to $225.0 million and concurrently an additional $15.0 million was secured through the addition of Customer's Bank to the syndicate, bringing the effective commitment to $125.0 million. At September 30, 2014, $35.5 million was outstanding on the facility. The facility bears interest at optional rates as either the Prime Rate or LIBOR/the Federal Funds rate as base rates, plus a spread, plus an applicable margin (either 1.50% or 2.50%). RSO guaranteed Northport LLC's performance of its obligations under this credit facility.

Related party transactions - RSO

Relationship with LEAF. LEAF Financial Corporation originated and managed equipment leases and notes on behalf of RSO. On March 5, 2010, RSO entered into agreements with Lease Equity Appreciation Fund II, L.P. (“LEAF II”) (an equipment leasing partnership sponsored by LEAF Financial and of which a LEAF Financial subsidiary is the general partner), pursuant to which RSO provided an $8.0 million credit facility to LEAF II. The credit facility initially had a one year term at 12% per year, payable quarterly, and was secured by all the assets of LEAF II. RSO received a 1% origination fee in connection with establishing the facility. The facility originally matured on March 3, 2011 and was extended until September 3, 2011 with a 1% extension fee paid on the outstanding loan balance. On June 3, 2011, RSO entered into an amendment to extend the maturity to February 15, 2012 and decrease the interest rate from 12% to 10% per annum resulting in a troubled-debt restructuring under current accounting guidance. On February 15, 2012, the credit facility was further amended to extend the maturity to February 15, 2013 with a 1% extension fee accrued and added to the amount outstanding. On January 11, 2013, RSO entered into a further amendment to extend the maturity to February 15, 2014 with an additional 1% extension fee accrued and added to the amount outstanding. On December 17, 2013, RSO entered into a further amendment to extend the maturity to February 15, 2015. Principal payments of $1.8 million were made during nine months ended September 30, 2014. During the three and nine months ended September 30, 2014, RSO recorded an allowance for loan loss on this loan of $236,000 and $936,000, respectively. The loan amount outstanding at September 30, 2014 and December 31, 2013 was $3.9 million (net of allowance of $936,000) and $5.7 million, respectively.

RSO's resulting interest from the formation of LEAF is accounted for under the equity method. For the three and nine months ended September 30, 2014, RSO recorded a gain of $13,000 and a loss of $859,000, respectively, and for the three and nine months ended September 30, 2013,recorded earnings of $304,000 and losses of $32,000 which was recorded in equity in net earnings (losses) of unconsolidated subsidiaries on RSO's consolidated statement of income. RSO’s investment in LEAF was $40.2 million and $41.0 million as of September 30, 2014 and December 31, 2013, respectively.

Relationship with CVC Credit Partners. CVC Credit Partners manages internally and externally originated bank loan assets on RSO’s behalf. On February 24, 2011, a subsidiary of RSO purchased 100% of the ownership interests in Churchill Pacific Asset Management LLC ("CPAM") from Churchill Financial Holdings LLC for $22.5 million. CPAM subsequently changed its name to Resource Capital Asset Management ("RCAM"). Through RCAM, RSO was initially entitled to collect senior, subordinated and incentive fees related to five CLOs holding approximately $1.9 billion in assets managed by RCAM. RCAM is assisted by CVC Credit Partners in managing these CLOs. CVC Credit Partners is entitled to 10% of all subordinated fees and 50% of the incentive fees received by RCAM. For the three and nine months ended September 30, 2014, CVC Credit Partners earned subordinated fees of $309,000 and $1.0 million, respectively. For the three and nine months ended September 30, 2013, CVC Credit Partners earned subordinated fees of $160,000 and $515,000. In October 2012, RSO purchased 66.6% of the preferred equity in one of the RCAM CLOs. In May 2013, RSO purchased additional equity interest in this CLO, increasing its ownership to 68.3%. In September 2013, this CLO was liquidated and the notes were paid down in full. Another RCAM-managed CLO also elected to redeem its outstanding notes in whole in February 2013.

In May, June and July 2013, RSO invested a total of $15.0 million into a limited partnership agreement with CVC Global Credit Opportunities Fund, L.P. which generally invests in assets through the Master Fund. The fund will pay the investment manager a quarterly management fee in advance calculated at the rate of 1.5% annually based on the balance of each limited partner's capital account. RSO's management fee was waived upon entering the agreement since RSO is a related party of CVC Credit Partners. For the three and nine months ended September 30, 2014, RSO recorded earnings of $47,000 and $2.0 million, which was recorded in equity in net earnings (losses) of unconsolidated subsidiaries on RSO's consolidated statements of income. For the three and nine months ended September 30, 2013, RSO recorded earnings of $93,000. The fund's investment balance of $18.2 million and $16.2 million as of September 30, 2014 and December 31, 2013, respectively, is recorded as an investment in unconsolidated entities on RSO's consolidated balance sheets using the equity method.

Relationship with Ledgewood. Until 1996, Edward E. Cohen, a director who was RSO’s Chairman from its inception until November 2009, was of counsel to Ledgewood, P.C., a law firm. In addition, one of RSO’s executive officers, Jeffrey F. Brotman, was employed by Ledgewood until 2007. Mr. E. Cohen receives certain debt service payments from Ledgewood related to the termination of his affiliation with Ledgewood and its redemption of his interest in the firm. Mr. Brotman also receives certain debt service payments from Ledgewood related to the termination of his affiliation with the firm. For the three and nine months ended September 30, 2014, RSO paid Ledgewood $45,000 and $202,000, respectively, and for the three and nine months ended September 30, 2013 $70,000 and $155,000 in connection with legal services rendered to RSO.

Fair value of financial instruments

The following table presents information about RSO’s assets (including derivatives that are presented net) measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized by RSO to determine such fair value as follows (in thousands):



	Level 1		Level 2		Level 3		Total
As of September 30, 2014
Assets:
Investment securities, trading	$	—	$	—	$	9,187	$	9,187
Investment securities available-for-sale	870		1,530		278,618		281,018
CMBS - linked transactions	—		—		14,272		14,272
Derivatives (net)	—		21,618		—		21,618
Total assets at fair value	$	870	$	23,148	$	302,077	$	326,095

Liabilities:
Derivatives (net)	$	—	$	872	$	7,958	$	8,830
Total liabilities at fair value	$	—	$	872	$	7,958	$	8,830

As of December 31, 2013
Assets:
Investment securities, trading	$	—	$	—	$	11,558	$	11,558
Investment securities available-for-sale	2,370		92		207,375		209,837
CMBS - linked transactions	—		—		30,066		30,066
Total assets at fair value	$	2,370	$	92	$	248,999	$	251,461

Liabilities:
Derivatives (net)	$	—	$	395	$	10,191	$	10,586
Total liabilities at fair value	$	—	$	395	$	10,191	$	10,586

The following table presents additional information about assets which are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):



	CMBS Including Linked Transactions			ABS			RMBS			Structured Finance			Total
Beginning balance, January 1, 2014	$	210,785		$	26,656		$	451		$	11,107		$	248,999
Total gains or losses (realized or unrealized):
Included in earnings	142			5,118			31			(2,454		)	2,837
Purchases	105,572			61,402			31,058			3,999			202,031
Sales	(99,151		)	(20,100		)	—			(2,050		)	(121,301		)
Paydowns	(36,768		)	(10,412		)	(825		)	—			(48,005		)
Included in OCI	9,009			9,091			897			(1,481		)	17,516
Transfers out of Level 2	—			—			—			—			—
Transfers into Level 3	—			—			—			—			—
Ending balance, September 30, 2014	$	189,589		$	71,755		$	31,612		$	9,121		$	302,077

In accordance with FASB ASC Topic 820-10-50-2-bbb, RSO is not required to disclose quantitative information with respect to unobservable inputs contained in fair value measurements that are not developed by RSO. As such, RSO has not disclosed such information associated with fair values obtained from third-party pricing sources. Because RSO is not able to obtain significant observable inputs and market data points due to a change in methodology whereby RSO began using a third party valuation firm to determine fair value. RSO reclassified $94.9 million of CMBS (including certain CMBS accounted for as linked transactions), to Level 3 during the year ended December 31, 2013.

The following table presents additional information about liabilities which are measured at fair value on a recurring basis for which RSO has utilized Level 3 inputs (in thousands):



	Level 3
Beginning balance, January 1, 2014	$	10,191
Unrealized losses – included in accumulated other comprehensive income	(2,233		)
Ending balance, September 30, 2014	$	7,958

RSO had no losses included in earnings due to other-than-temporary impairment charges during the three and nine months ended September 30, 2014, respectively. RSO had $255,000 and $811,000 of losses included in earnings due to the other-than-temporary impairment charges during the three and nine months ended September 30, 2013, respectively. These losses are included in RSO's consolidated statements of operations as net impairment losses recognized in earnings.

Loans held for sale consist of bank loans and CRE loans identified for sale due to credit concerns. Interest on loans held for sale is recognized according to the contractual terms of the loan and included in interest income on loans. The fair value of bank loans held for sale and impaired bank loans is based on what secondary markets are currently offering for these loans. As such, RSO classifies these loans as nonrecurring Level 2. For RSO’s CRE loans where there is no primary market, fair value is measured using discounted cash flow analysis and other valuation techniques and these loans are classified as nonrecurring Level 3. The amount of nonrecurring fair value losses for impaired loans for the three and nine months ended September 30, 2014 was $807,000 and $1.2 million, respectively. For the three and nine months ended September 30, 2013, nonrecurring fair value losses for impaired loans was $69,000 and $3.1 million, respectively, and is included in the consolidated statements of operations as provision for loan and lease losses.

The following table summarizes the financial assets and liabilities measured at fair value on a nonrecurring basis and indicates the fair value hierarchy of the valuation techniques utilized by RSO to determine such fair value as follows (in thousands):



	Level 1		Level 2		Level 3		Total
As of September 30, 2014
Assets:
Loans held for sale	$	—	$	36,674	$	54,708	$	91,382
Impaired loans	—		893		—		893
Total assets at fair value	$	—	$	37,567	$	54,708	$	92,275

As of December 31, 2013
Assets:
Loans held for sale	$	—	$	6,850	$	15,066	$	21,916
Impaired loans	—		225		—		225
Total assets at fair value	$	—	$	7,075	$	15,066	$	22,141

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2014, the significant unobservable inputs used in the fair value measurements were as follows (in thousands):



	Fair Value at September 30, 2014		Valuation Technique	Significant Unobservable Inputs	Significant Unobservable Input Value
Interest rate swap agreements	$	7,958	Discounted cash flow	Weighted average credit spreads	5.12	%

RSO is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair value of short-term financial instruments such as cash and cash equivalents, restricted cash, principal paydown receivable, interest receivable, distribution payable and accrued interest expense approximates their carrying value on the consolidated balance sheets. The fair value of RSO’s investment securities-trading is reported in section D. "Investment securities - trading" above. The fair value of RSO’s investment securities available-for-sale is reported in section E. "Investment securities available-for-sale" above.

Loans held-for-investment: The fair value of RSO’s Level 2 Loans held-for-investment are primarily measured using a third-party pricing service. The fair value of RSO’s Level 3 Loans held-for-investment are measured by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Loans receivable-related party are estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

CDO notes are valued using the dealer quotes, typically the dealer who underwrote the CDO in which the notes are held. Moselle CLO is valued using a third-party pricing specialist.

Junior subordinated notes are estimated by obtaining quoted prices for similar assets in active markets.

RSO elected the fair value option for Moselle CLO when it consolidated it in 2014. The fair value option was elected for this CLO due to the relative pricing visibility on both the underlying assets and the notes of the CLO. Additionally, RSO believes the fair value option also better reflects the nature and intent of the management's investment in this vehicle. RSO recorded a gain of $2.2 million and $3.5 million on the fair value of loans of Moselle CLO and a loss of $2.6 million and $3.0 million on the fair value of the notes of Moselle CLO as net realized and unrealized gain/(loss) on investment securities available-for-sale and loans for the three and nine months ended September 30, 2014 on the consolidated statement of income. The interest income recorded to interest income-loans on the consolidated income statement and the interest expense recorded to interest expense on the consolidated income statement were calculated at the coupon rate. At September 30, 2014 there were no significant gains or losses for the assets or liabilities due to credit risk.

The fair values of RSO’s remaining financial instruments that are not reported at fair value on its consolidated balance sheets are reported in the following table (in thousands):



			Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets of Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of September 30, 2014
Loans held-for-investment ⁽¹⁾	$	1,744,899	$	1,730,763	$	—	$	632,815	$	1,097,948
Loans receivable-related party	$	4,172	$	4,172	$	—	$	—	$	4,172
CDO notes ⁽²⁾	$	1,213,852	$	1,131,145	$	—	$	1,131,145	$	—
Junior subordinated notes	$	51,154	$	17,648	$	—	$	—	$	17,648
Repurchase agreements	$	185,062	$	185,062	$	—	$	—	$	185,062
Senior secured revolving credit agreement	$	32,911	$	32,911	$	—	$	—	$	32,911

As of December 31, 2013
Loans held-for-investment	$	1,369,526	$	1,358,434	$	—	$	545,352	$	813,082
Loans receivable-related party	$	6,966	$	6,966	$	—	$	—	$	6,966
CDO notes	$	1,070,339	$	653,617	$	—	$	653,617	$	—
Junior subordinated notes	$	51,005	$	17,499	$	—	$	—	$	17,499
Repurchase agreements	$	77,304	$	77,304	$	—	$	—	$	77,304


(1)	Contains loans for which the fair value method was elected with an unpaid principal balance of $89.2 million and a fair value of $83.0 million at September 30, 2014.


(2)	Contains notes for which the fair value method was elected with an unpaid principal balance of $95.0 million and a fair value of $92.5 million at September 30, 2014.

RAI - Other VIEs

In March 2014, the Company made a payment under a guarantee on behalf of a VIE that it does not consolidate. As a result of the payment, the Company re-evaluated the VIE for consolidation and determined to exclude it on the basis of immateriality to the consolidated financial statements.

VIEs not consolidated

The Company’s investments in the structured finance entities that hold investments in trust preferred assets (the “Trapeza entities”) and asset-backed securities (the "Ischus entities”), and RREGPS were all determined to be VIEs that the Company does not consolidate as it does not have the obligation of, or right to, losses or earnings that would be significant to those entities. The Company has not provided financial or other support to these VIEs and has no liabilities, contingent liabilities, or guarantees (implicit or explicit) related to these VIEs at September 30, 2014.

The following table presents the carrying amounts of the assets in the Company's consolidated balance sheets that relate to the Company's variable interests in identified nonconsolidated VIEs and the Company's maximum exposure to loss associated with these VIEs in which it holds variable interests at September 30, 2014 (in thousands):



	Receivables from Managed Entities and Related Parties, Net ⁽¹⁾		Investments		Maximum Exposure to Loss in Non-consolidated VIEs
Ischus entities	$	158	$	—	$	158
Trapeza entities	—		661		661
RREGPS	—		716		716
	$	158	$	1,377	$	1,535


(1)	Exclusive of expense reimbursements due to the Company.