Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN CONSUMER LOANS, EQUITY METHOD INVESTEES

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INVESTMENTS IN CONSUMER LOANS, EQUITY METHOD INVESTEES
6 Months Ended
Jun. 30, 2015
Investments In Consumer Loans Equity Method Investees [Abstract]  
INVESTMENTS IN CONSUMER LOANS, EQUITY METHOD INVESTEES
INVESTMENTS IN CONSUMER LOANS, EQUITY METHOD INVESTEES
 
In April 2013, New Residential completed, through newly formed limited liability companies (together, the “Consumer Loan Companies”), a co-investment in a portfolio of consumer loans. The portfolio included personal unsecured loans and personal homeowner loans originated through subsidiaries of HSBC Finance Corporation. The Consumer Loan Companies acquired the portfolio from HSBC Finance Corporation and its affiliates. New Residential acquired 30% membership interests in each of the Consumer Loan Companies. Of the remaining 70% of the membership interests, Springleaf acquired 47% and an affiliate of Blackstone Tactical Opportunities Advisors L.L.C. acquired 23%. Springleaf acts as the managing member of the Consumer Loan Companies. The Consumer Loan Companies initially financed approximately 73% of the original purchase price with asset-backed notes. In September 2013, the Consumer Loan Companies issued and sold additional asset-backed notes that were subordinate to the debt issued in April 2013. The Consumer Loan Companies were formed on March 19, 2013, for the purpose of making this investment, and commenced operations upon the completion of the investment. After a servicing transition period, Springleaf became the servicer of the loans and provides all servicing and advancing functions for the portfolio.

On October 3, 2014, the Consumer Loan Companies refinanced the outstanding asset-backed notes with an asset-backed securitization for approximately $2.6 billion. The proceeds in excess of the refinanced debt were distributed to the respective co-investors. New Residential received approximately $337.8 million, which reduced New Residential’s basis in the consumer loans investment to $0.0 million and resulted in a gain of approximately $80.1 million. Subsequent to this refinancing, New Residential has discontinued recording its share of the underlying earnings of the Consumer Loan Companies until such time as their cumulative earnings exceed their cumulative distributions. During the six months ended June 30, 2015, the Consumer Loan Companies distributed $19.0 million to New Residential in excess of its basis, resulting in corresponding gains, and made $0.6 million in tax withholding payments on behalf of New Residential. The tax withholding payments were considered a non-cash distribution.

The following tables summarize the investment in the Consumer Loan Companies held by New Residential:
 
 
June 30, 2015
 
December 31, 2014
Consumer loan assets (amortized cost basis)
 
$
1,880,054

 
$
2,088,330

Other assets
 
78,643

 
92,051

Debt
 
(2,145,948
)
 
(2,411,421
)
Other liabilities
 
(5,479
)
 
(12,340
)
Equity
 
$
(192,730
)
 
$
(243,380
)
New Residential’s investment
 
$

 
$

New Residential’s ownership
 
30.0
%
 
30.0
%


 
 
Three Months Ended June 30,

Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Interest income
 
$
116,271

 
$
135,629

 
$
238,140

 
$
278,444

Interest expense
 
(22,188
)
 
(18,106
)
 
(45,295
)
 
(40,301
)
Provision for finance receivable losses
 
(17,719
)
 
(27,663
)
 
(37,355
)
 
(61,819
)
Other expenses, net
 
(14,798
)
 
(19,279
)
 
(30,762
)
 
(39,731
)
Change in fair value of debt
 

 
535

 

 
(16,332
)
Net income
 
$
61,566

 
$
71,116

 
$
124,728

 
$
120,261

New Residential’s equity in net income (through October 3, 2014)
 
$

 
$
21,335

 
$

 
$
37,695

New Residential’s ownership
 
30.0
%
 
30.0
%
 
30.0
%
 
30.0
%

 
The following is a summary of New Residential’s consumer loan investments made through equity method investees:
 
Unpaid Principal Balance(A)

Interest in  Consumer Loan Companies

Carrying Value(B)

Weighted Average Coupon(C)

Weighted Average Yield

Weighted Average Expected Life (Years)(D)
June 30, 2015
$
2,329,736

 
30.0
%
 
$
1,880,054

 
18.2
%
 
17.8
%
 
3.5
December 31, 2014
$
2,589,748

 
30.0
%
 
$
2,088,330

 
18.1
%
 
16.1
%
 
3.6

(A)
Represents the May 31, 2015 and November 30, 2014 balances, respectively.
(B)
Represents the carrying value of the consumer loans held by the Consumer Loan Companies.
(C)
Substantially all of the cash flows received on the loans is required to be used to make payments on the notes described above.
(D)
Weighted Average Expected Life represents the weighted average expected timing of the receipt of expected cash flows for this investment.