Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS IN CONSUMER LOANS

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INVESTMENTS IN CONSUMER LOANS
3 Months Ended
Mar. 31, 2016
Investments In Consumer Loans Equity Method Investees [Abstract]  
INVESTMENTS IN CONSUMER LOANS
INVESTMENTS IN CONSUMER LOANS
 
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, OneMain acquired 47% and funds managed by Blackstone Tactical Opportunities Advisors L.L.C. acquired 23%. OneMain acted 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, OneMain 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. The proceeds in excess of the refinanced debt were distributed to the respective co-investors, which reduced New Residential’s basis in the consumer loans investment to $0.0 million and resulted in a gain. Subsequent to this refinancing, New Residential discontinued recording its share of the underlying earnings of the Consumer Loan Companies. During the three months ended March 31, 2016, the Consumer Loan Companies distributed $9.9 million to New Residential in excess of its basis, resulting in corresponding gains, including $0.03 million in tax withholding payments on behalf of New Residential. The tax withholding payments were considered a non-cash distribution.

On March 31, 2016, New Residential entered into the SpringCastle Transaction (Note 1). As a result, New Residential owns 53.5% of, and consolidates, the Consumer Loan Companies.

The following tables summarize the investment in Consumer Loans, held-for-investment held by New Residential:
 
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)
 
Delinquency(E)
March 31, 2016(F)
$
1,986,162

 
53.5
%
 
$
1,970,565

 
18.3
%
 
9.5
%
 
4.2
 
7.0
%
December 31, 2015(G)
$
2,094,904

 
30.0
%
 
$
1,698,130

 
18.2
%
 
18.1
%
 
4.4
 
7.2
%

(A)
Represents the balances as of February 29, 2016 and November 30, 2015, 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 was required to be used to make payments on the notes described above.
(D)
Represents the weighted average expected timing of the receipt of expected cash flows for this investment.
(E)
Represents the percentage of the total principal balance that is 30+ days delinquent. Delinquency status is the primary credit quality indicator as it provides early warning of borrowers who may be experiencing financial difficulties.
(F)
Includes loans with evidence of credit deterioration since origination where it is probable that New Residential will not collect all contractually required principal and interest payments, which are accounted for as PCD loans.
(G)
Held through an equity method investee at such time.

The following are the contractually required payments receivable, cash flows expected to be collected, and fair value at acquisition date for PCD loans acquired on March 31, 2016 as a result of the SpringCastle Transaction:
 
Contractually Required Payments Receivable
 
Cash Flows Expected to be Collected
 
Fair Value
As of Acquisition Date
$
1,003,470

 
$
541,967

 
$
405,033


The Consumer Loan Companies consolidate certain entities that issued securitized debt collateralized by the consumer loans (the “Consumer Loan SPVs”). The Consumer Loan SPVs are VIEs of which the Consumer Loan Companies are the primary beneficiaries. The following table presents information on the combined assets and liabilities related to these consolidated VIEs.
 
 
As of
 
 
March 31, 2016
Assets
 
 
Consumer loans, held-for-investment
 
$
1,970,565

Restricted cash
 
14,931

Total assets(A)
 
$
1,985,496

Liabilities
 
 
Notes and bonds payable
 
$
1,803,192

Accounts payable and accrued expenses
 
4,764

Total liabilities(A)
 
$
1,807,956


(A)
The creditors of the Consumer Loan SPVs do not have recourse to the general credit of New Residential, and the assets of the Consumer Loan SPVs are not directly available to satisfy New Residential’s obligations.