CIFC Corp. - FORM 10-Q - May 11, 2015

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from             to             
 
Commission file number: 1-32551
 
CIFC CORP.
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
20-2008622
 (I.R.S. Employer Identification No.)
 
 
 
250 Park Avenue, 4th Floor, New York, NY
 (Address of principal executive offices)
 
10177
 (Zip code)
 
Registrant’s telephone number, including area code: 212-624-1200
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
                           Large accelerated filer o
 
                               Accelerated filer o
 
 
 
                           Non-accelerated filer o
 
                               Smaller reporting company x
(Do not check if a smaller reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

There were 25,300,959 shares of the registrant’s common stock outstanding as of April 28, 2015.
 


CIFC CORP.

Index to Form 10-Q

 
 
Page
 
 



CERTAIN DEFINITIONS
Unless otherwise noted or the context otherwise requires, we refer to CIFC Corp. as "CIFC," to CIFC and its subsidiaries as "we," "us," "our," "our company" or "the Company," to CIFC Asset Management LLC, one of our wholly-owned subsidiaries, as "CIFCAM," to Deerfield Capital Management LLC, one of our indirect wholly-owned subsidiaries, as "DCM," to CypressTree Investment Management, LLC, one of our indirect wholly-owned subsidiaries, as "CypressTree," to Columbus Nova Credit Investments Management, LLC, one of our indirect wholly-owned subsidiaries, as "CNCIM."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q (the "Quarterly Report"), and the information incorporated by reference into this Quarterly Report are forward-looking statements, as permitted by the Private Securities Litigation Reform Act of 1995. These include, but are not limited to, statements regarding future results or expectations. Forward-looking statements can be identified by forward-looking language, including words such as "believes," "anticipates," "expects," "estimates," "intends," "may," "plans," "projects," "will" and similar expressions, or the negative of these words. Such forward-looking statements are based on facts and conditions as they exist at the time such statements are made, various operating assumptions and predictions as to future facts and conditions, which may be difficult to accurately make and involve the assessment of events beyond our control. Caution must be exercised in relying on forward-looking statements. Our actual results may differ materially from the forward-looking statements contained in this Quarterly Report. We believe these factors include, but are not limited to, those described under the section entitled Item 1A—"Risk Factors" in our 2014 Annual Report on Form 10-K (the "Annual Report"), as such factors may be updated from time to time in our periodic filings with the United States Securities and Exchange Commission (“SEC”), which are accessible on the SEC’s website at www.sec.gov.

The forward-looking statements contained in this Quarterly Report are made as of the date hereof, and we do not undertake any obligation to update any forward-looking statement to reflect subsequent events, new information or circumstances arising after the date of this Quarterly Report. All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referenced above. In addition, it is our policy generally not to make any specific projections as to future earnings, and we do not endorse any projections regarding future performance that may be made by third parties.





3


PART I. Financial Information

Item 1.    Condensed Consolidated Financial Statements and Notes (Unaudited)

CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)


 
March 31,
2015
 
December 31,
2014
 
(In thousands, except share
and per share amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
41,461

 
$
59,290

Restricted cash and cash equivalents
1,694

 
1,694

Due from brokers
975

 
1

Investments
39,799

 
38,699

Receivables
1,657

 
2,134

Prepaid and other assets
5,096

 
4,115

Deferred tax asset, net
55,624

 
55,475

Equipment and improvements, net
5,264

 
5,194

Intangible assets, net
12,718

 
15,074

Goodwill
76,000

 
76,000

Subtotal
240,288

 
257,676

Assets of Consolidated Entities:
 

 
 
Restricted cash and cash equivalents
827,282

 
935,416

Due from brokers
217,505

 
120,541

Investments
12,372,088

 
11,772,826

Receivables
41,520

 
40,994

Prepaid and other assets
668

 
20,682

Total assets of Consolidated Entities (1)
13,459,063

 
12,890,459

TOTAL ASSETS
$
13,699,351

 
$
13,148,135

LIABILITIES
 
 
 
Due to brokers
$
6,245

 
$
—

Dividends payable
2,543

 
—

Accrued and other liabilities
8,626

 
15,584

Contingent liabilities
11,823

 
12,668

Long-term debt
120,000

 
120,000

   Subtotal
149,237

 
148,252

Non-Recourse Liabilities of Consolidated Entities:
 
 
 
Due to brokers
512,680

 
391,291

Accrued and other liabilities
702

 
1,482

Interest payable
32,538

 
36,174

Long-term debt
12,403,268

 
12,049,034

Total Non-Recourse Liabilities of Consolidated Entities (1)
12,949,188

 
12,477,981

TOTAL LIABILITIES
13,098,425

 
12,626,233

EQUITY
 
 
 
Common stock, par value $0.001: 500,000,000 shares authorized, 25,431,403 issued and 25,300,959 outstanding as of March 31, 2015 and 25,323,417 issued and 25,192,973 outstanding as of December 31, 2014

25

 
25

Treasury stock, at cost: 130,444 shares as of March 31, 2015 and December 31, 2014
(914
)
 
(914
)
Additional paid-in capital
990,448

 
988,904

Retained earnings (deficit)
(808,810
)
 
(811,695
)
TOTAL CIFC CORP. STOCKHOLDERS’ EQUITY
180,749

 
176,320

Noncontrolling interest in Consolidated Funds (Note 2)
303,962

 
210,818

Appropriated retained earnings (deficit) of Consolidated VIEs
116,215

 
134,764

TOTAL EQUITY
600,926

 
521,902

TOTAL LIABILITIES AND EQUITY
$
13,699,351

 
$
13,148,135



4

CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)

    
Included in the Company's Condensed Consolidated Balance Sheets are balances from Consolidated Variable Interest Entities ("Consolidated VIEs") (1). See Notes 2, 3 and 4.
 
March 31,
2015
 
December 31,
2014
 
(In thousands)
ASSETS
 
 
 
Assets of Consolidated VIEs:
 

 
 
Restricted cash and cash equivalents
$
786,364

 
$
929,401

Due from brokers
163,699

 
102,373

Investments
12,073,063

 
11,573,164

Receivables
40,676

 
40,235

Total assets of Consolidated VIEs
$
13,063,802

 
$
12,645,173

LIABILITIES
 
 
 
Non-Recourse Liabilities of Consolidated VIEs:
 

 
 

Due to brokers
$
439,595

 
$
372,956

Accrued and other liabilities
456

 
1,230

Interest payable
32,538

 
36,174

Long-term debt
12,403,268

 
12,049,034

Total Non-Recourse Liabilities of Consolidated VIEs
$
12,875,857

 
$
12,459,394

Explanatory Note: 
________________________________
(1)
If the Company were to liquidate, the assets of the Consolidated Entities would not be available to the Company's general creditors, and as a result, the Company does not consider them its assets. Additionally, the investors in the debt and residual interests of the Consolidated Entities have no recourse to the Company's general assets. Therefore, this debt is not the Company's obligation.

   See notes to Condensed Consolidated Financial Statements.


5

CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)


 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands, except share and per share amounts)
Revenues
 
 
 
 
Management fees and Incentive fees
 
$
1,535

 
$
1,612

Net interest income from investments
 
2,121

 
97

Total net revenues
 
3,656

 
1,709

Expenses
 
 
 
 
Employee compensation and benefits
 
10,102

 
7,340

Professional services
 
1,926

 
1,046

General and administrative expenses
 
2,439

 
2,213

Depreciation and amortization
 
2,409

 
3,145

Impairment of intangible assets
 
281

 
—

Total expenses
 
17,157

 
13,744

Other Income (Expense) and Gain (Loss)
 
 
 
 
Net gain (loss) on investments
 
234

 
1,406

Net gain (loss) on contingent liabilities (Note 9)
 
(713
)
 
(229
)
Corporate interest expense
 
(494
)
 
(1,467
)
Net gain on sale of management contract
 
—

 
228

Net other income (expense) and gain (loss)
 
(973
)
 
(62
)
Operating income (loss)
 
(14,474
)
 
(12,097
)
 
 
 
 
 
Results of Consolidated Variable Interest Entities
 
 
 
 
Net results of Consolidated Entities (Note 6)
 
10,301

 
49,082

 
 
 
 
 
Income (loss) before income taxes
 
(4,173
)
 
36,985

   Income tax (expense) benefit
 
(3,087
)
 
(12,404
)
Net income (loss)
 
(7,260
)
 
24,581

Net (income) loss attributable to noncontrolling interest in Consolidated Entities (Note 2)
 
12,688

 
(24,346
)
Net income (loss) attributable to CIFC Corp.
 
$
5,428

 
$
235

 
 
 
 
 
Earnings (loss) per share (Note 12) —
 
 
 
 
Basic
 
$
0.21

 
$
0.01

Diluted
 
$
0.20

 
$
0.01

Weighted-average number of shares outstanding (Note 12)—
 
 
 
 
Basic
 
25,279,226

 
20,839,236

Diluted
 
26,572,616

 
21,937,897




   
See notes to Condensed Consolidated Financial Statements.


6

CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited)



 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
 
 
(In thousands)
Net income (loss)
 
$
(7,260
)
 
$
24,581

Other comprehensive income (loss)
 
—

 
—

Comprehensive income (loss)
 
(7,260
)
 
24,581

Comprehensive (income) loss attributable to noncontrolling interest in Consolidated Entities
 
12,688

 
(24,346
)
Comprehensive income (loss) attributable to CIFC Corp.
 
$
5,428

 
$
235



   See notes to Condensed Consolidated Financial Statements.


7

CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Equity
(unaudited)


 
CIFC CORP. Stockholders' Equity
 
Consolidated Entities (Note 2)
 
 
 
Common Stock
 
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
 
Par
Value
 
Amount
 
Additional
paid-in
capital
 
Accumulated
other
comprehensive
income (loss)
Retained earnings (deficit)
 
Total CIFC Corp. Stockholders' Equity
 
Noncontrolling Interests in Consolidated Funds
 
Appropriated
retained earnings
(deficit) of Consolidated
VIEs
 
Total Stockholders' Equity
 
(In thousands)
Balance—December 31, 2013
20,791

 
$
21

 
$
(914
)
 
$
963,011

 
$
—

 
$
(810,858
)
 
$
151,260

 
$
5,107

 
$
151,386

 
$
307,753

Net income (loss)
—

 
—

 
—

 
—

 
—

 
235

 
235

 
196

 
24,150

 
24,581

Share-based compensation
—

 
—

 
—

 
182

 
—

 
—

 
182

 
—

 
—

 
182

Exercise of options
100

 
—

 
—

 
514

 
—

 
—

 
514

 
—

 
—

 
514

Contribution from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
375

 
—

 
375

Consolidation of Consolidated Entities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
140,115

 
—

 
140,115

Deconsolidation of Consolidated Entities
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(5,293
)
 
—

 
(5,293
)
Dividends declared ($0.10 per share)
—

 
—

 
—

 
—

 
—

 
(2,089
)
 
(2,089
)
 
—

 
—

 
(2,089
)
Balance—March 31, 2014
20,891

 
$
21

 
$
(914
)
 
$
963,707

 
$
—

 
$
(812,712
)
 
$
150,102

 
$
140,500

 
$
175,536

 
$
466,138

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—December 31, 2014
25,193

 
$
25

 
$
(914
)
 
$
988,904

 
$
—

 
$
(811,695
)
 
$
176,320

 
$
210,818

 
$
134,764

 
$
521,902

Net income (loss)
—

 
—

 
—

 
—

 
—

 
5,428

 
5,428

 
5,861

 
(18,549
)
 
(7,260
)
Share-based compensation
83

 
—

 
—

 
1,415

 
—

 
—

 
1,415

 
—

 
—

 
1,415

Exercise of options
25

 
—

 
—

 
129

 
—

 
—

 
129

 
—

 
—

 
129

Contribution from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
87,283

 
—

 
87,283

Dividends declared ($0.10 per share)
—

 
—

 
—

 
—

 
—

 
(2,543
)
 
(2,543
)
 
—

 
—

 
(2,543
)
Balance—March 31, 2015
25,301

 
$
25

 
$
(914
)
 
$
990,448

 
$
—

 
$
(808,810
)
 
$
180,749

 
$
303,962

 
$
116,215

 
$
600,926


   See notes to Condensed Consolidated Financial Statements.

8

CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited)


 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income (loss)
$
(7,260
)
 
$
24,581

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 
 

Net premium and discount (accretion) amortization on investments, loans and debt issuance costs
—

 
84

Share-based compensation
1,680

 
182

Net (gain) loss on investments and contingent liabilities / other (gain) loss
479

 
(1,178
)
Net gain on the sale of management contract
—

 
(228
)
Depreciation and amortization
2,409

 
3,145

Impairment of intangible assets
281

 
—

Deferred income tax expense (benefit)
(150
)
 
6,836

Excess tax benefits from share-based payment arrangements
(8
)
 
(38
)
Consolidated Entities:
 

 
 

Net (gain) loss on investments
(117,982
)
 
(3,738
)
Net (gain) loss on liabilities
189,451

 
30,294

Net other (gain) loss
(438
)
 
(106
)
Changes in operating assets and liabilities:
 
 
 
Due from brokers
(974
)
 
12,402

Receivables
478

 
394

Prepaid and other assets
(1,003
)
 
703

Due to brokers
6,245

 
(1,345
)
Accrued and other liabilities
(6,955
)
 
(2,737
)
Change in restricted cash and cash equivalents
—

 
8

Consolidated Entities:
 

 
 

Due from brokers
(119,150
)
 
(86,085
)
Purchase of investments
(1,850,569
)
 
(2,028,085
)
Sales of investments
1,303,534

 
1,934,058

Receivables
18,858

 
(20,678
)
Due to brokers
142,851

 
154,553

Accrued and other liabilities
(3,481
)
 
1,269

Interest payable
(773
)
 
1,284

Net cash provided by (used in) operating activities
(442,477
)
 
25,575

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Proceeds from the sale of management contracts
—

 
228

Purchases of investments
(6,801
)
 
(8,742
)
Sales of investments
28,441

 
13,681

Purchases of equipment and improvements
(403
)
 
(373
)
Consolidated Entities:
 

 
 

Change in restricted cash and cash equivalents
102,018

 
(213,042
)
Net cash provided by (used in) investing activities
123,255

 
(208,248
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Debt issuance costs amortization
22

 
301

Net proceeds/(taxes) related to option exercises, restricted stock unit settlements and extension of warrants
(144
)
 
483

Deferred purchase payments and payments on contingent liabilities
(1,559
)
 
(2,216
)
Excess tax benefits from share-based payment arrangements

8

 
38

Consolidated Entities:
 

 
 

Contributions from noncontrolling interests
87,283

 
375

Proceeds from issuance of long-term debt
583,420

 
1,049,074

Payments made on long-term debt
(367,637
)
 
(856,884
)
Net cash provided by (used in) financing activities
301,393

 
191,171

Foreign currency translation
—

 
—

Net increase (decrease) in cash and cash equivalents
(17,829
)
 
8,498

Cash and cash equivalents at beginning of period
59,290

 
25,497

Cash and cash equivalents at end of period
$
41,461

 
$
33,995




9


CIFC CORP. AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(unaudited)


 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
SUPPLEMENTAL DISCLOSURE:
 

 
 

Cash paid for interest
$
481

 
$
482

Cash paid for income taxes
$
1,536

 
$
3,450

Consolidated Entities:
 

 
 

Cash paid for interest
$
54,238

 
$
34,779

 
 
 
 
Non-cash disclosures:
 
 
 
Consolidated Entities:
 

 
 

Consolidation of net assets
$
—

 
$
151,148

Deconsolidation of net assets
$
22,578

 
$
(984
)
Non-cash settlement of interest receivables with increases in principal
$
334

 
$
595



See notes to Condensed Consolidated Financial Statements.


10

CIFC CORP. AND ITS SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1—Organization and Business

Organization—CIFC Corp. (“CIFC” and, together with its subsidiaries, the “Company”) is a Delaware corporation headquartered in New York City. The Company is a fundamentals-based, relative value, alternative credit manager. The Company's primary business is to provide investment management services for investment products. The Company manages assets for various types of investors, including pension funds, hedge funds, other asset management firms, banks, insurance companies and other types of institutional investors across the world.
The Company's assets under management ("AUM") is primarily comprised of Collateralized Loan Obligations ("CLOs"), credit funds, separately managed accounts ("SMAs") and other loan-based products (together, with credit funds and SMAs, "Non-CLO products"). These credit products are opportunistic investment strategies where the Company seeks to generate both current income and capital appreciation, primarily through senior secured corporate loans (“SSCLs”) investments and, to a lesser extent, other investments.

The Company has three primary sources of revenue: management fees, incentive fees and investment income. Management fees are generally earned based on the amount of assets managed (or AUM), incentive fees are earned based on the performance of the funds and investment income is earned based on the performance of the Company’s direct investment in its products. See Note 2.
As of March 31, 2015, DFR Holdings LLC ("DFR Holdings"), on a fully-diluted basis, owns approximately 70% of the Company's common stock.

Note 2—Basis of Presentation and Principles of Consolidation

Basis of Presentation—The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in conformity with the instructions to Form 10-Q and Article 10-01 of Regulation S-X for interim financial statements. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles in the United States of America ("GAAP") for complete financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Management believes that estimates utilized in the preparation of the Condensed Consolidated Financial Statements are prudent and reasonable. Actual results could differ from those estimates and such differences could be material. These interim unaudited Condensed Consolidated Financial Statements and related Notes should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

In the opinion of management, the accompanying Condensed Consolidated Financial Statements contain all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the results for the interim periods presented. Such operating results may not be indicative of the expected results for any other interim periods or the entire year.

Principles of Consolidation—The Condensed Consolidated Financial Statements include the financial statements of CIFC and its wholly-owned subsidiaries, the entities in which the Company has a controlling interest ("Consolidated Funds") and variable interest entities ("VIEs" or "Consolidated VIEs") for which the Company is deemed to be the primary beneficiary (together the "Consolidated Entities"). All intercompany balances and transactions have been eliminated upon consolidation. This consolidation, particularly with respect to the Consolidated Entities, significantly impacts the Company's Condensed Consolidated Financial Statements.

Consolidated Entities—Consolidated Entities includes the operating results of the Consolidated Funds and the Consolidated VIEs as defined below. As of March 31, 2015 and December 31, 2014, the Company held $84.9 million and $62.6 million, respectively of investments in its Consolidated Entities.

Consolidated Funds—The Company consolidates entities in which the Company has a controlling voting interest. As of March 31, 2015, the Company consolidated the following funds under the voting interest model.


11
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Senior Secured Corporate Loan Fund—The Company invests in and manages an open ended credit fund that invests in U.S. performing senior secured corporate loans (the "Senior Secured Corporate Loan Fund") to provide capital appreciation and risk-adjusted returns to its investors. The Company consolidated the fund as it held a controlling voting interest as the investment adviser. As of March 31, 2015 and December 31, 2014, the Company held an investment of $5.3 million and $5.2 million, respectively. As of March 31, 2015 and December 31, 2014, the limited partners held a $286.2 million and $204.5 million investment, respectively, which was reported in "Noncontrolling interest in Consolidated Funds" on the Condensed Consolidated Balance Sheet.
    
Tactical Income Fund—During 2013, the Company launched an open ended credit fund that invests primarily in second-lien loans (the "Tactical Income Fund"). As of March 31, 2015 and December 31, 2014, the Company was the investment adviser for the fund and the general partner in the fund, holding an investment of $13.9 million and $11.0 million, respectively. As of both March 31, 2015 and December 31, 2014, the Company held a controlling voting interest in the Tactical Income Fund and consolidated the entity. As of March 31, 2015 and December 31, 2014, the limited partners held a $17.8 million and $6.5 million investment, respectively, which was reported in "Noncontrolling interest in Consolidated Funds" on the Condensed Consolidated Balance Sheet.

Consolidated VIEs—The Company also consolidates variable interest entities in which it is deemed the primary beneficiary. These Consolidated VIEs generally include CLOs and CDOs (collectively, the "Consolidated CLOs"), warehouses and certain funds where the Company manages, holds an investment in the entity or is entitled to incentive fees.

Consolidated CLOs—As of both March 31, 2015 and December 31, 2014, the Company consolidated 31 CLOs. See Note 4.

Warehouses—From time to time, the Company will create special purpose vehicles ("SPVs") to warehouse SSCLs in advance of sponsoring new CLOs or other funds. The Company would generally contribute equity to the new SPVs which are typically levered (three to five times) depending on the terms agreed to with the warehousing counterparties. When the related CLO or fund is sponsored, typically around three to nine months later, the warehouse is “terminated,” with it concurrently repaying the related financing and returning to the Company its equity contribution, net of gains and losses, if any.

During the three months ended March 31, 2015 and 2014, the Company consolidated two and four warehouses, respectively, and deconsolidated one warehouse during each period. See Note 4 for more information. As of March 31, 2015, the Company consolidated one warehouse.

Unconsolidated Funds—Warehouse Fund—In December 2014, the Company launched a closed end structured credit fund that invests primarily in equity interests of warehouses managed by CIFC (the "Warehouse Fund"). As of March 31, 2015 and December 31, 2014, the carrying value of the Company's investment, as the general partner of the fund was $12.1 million and $10.6 million, respectively. The limited partners may remove the general partner's presumption of control, and as such, the Company did not consolidate the fund. As of March 31, 2015, the Company's investment was recorded in "Investments" on the Company's Condensed Consolidated Balance Sheet. As of March 31, 2015, the Warehouse Fund held no investments in warehouses that were Consolidated VIEs.

Co-Investment Fund—During 2013, the Company launched a closed end structured credit fund that invests primarily in residual tranches of CLOs and, to a lesser extent, warehouses, managed by CIFC (the "Co-Investment Fund"). As of March 31, 2015 and December 31, 2014, the carrying value of the Company's investment, as the general partner of the fund was $15.8 million and $16.6 million, respectively. The limited partners may remove the general partner's presumption of control, and as such, the Company did not consolidate the fund. As of March 31, 2015, the Company's investment was recorded in "Investments" on the Company's Condensed Consolidated Balance Sheet. In addition, as of March 31, 2015 and December 31, 2014, the Co-Investment Fund invested in eight and six CLOs, respectively, and one Warehouse managed by CIFC, which were Consolidated VIEs.

Unconsolidated VIEs
    
As of March 31, 2015, the Company had variable interests in an additional 1 CLO, 8 CDOs, and 5 other investment products, which the Company managed, that were not consolidated (collectively the "Unconsolidated VIEs") as the Company was not deemed to be the primary beneficiary of the unconsolidated VIEs. As of December 31, 2014, the Company's unconsolidated VIEs included 1 CLO, 8 CDOs and 4 other investment products.


12
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company's maximum exposure to loss on Unconsolidated VIEs includes its investment, management fee receivables and future management fees collectible by the Company. As of March 31, 2015 and December 31, 2014, the Company had no exposure to loss associated with the Unconsolidated VIEs related to investments made by the Company in the Unconsolidated VIEs. In addition, as of March 31, 2015 and December 31, 2014, the Company's management fee receivables were $0.4 million and $0.3 million, respectively.

Note 3—Summary of Significant Accounting Policies and Recent Accounting Updates

As of March 31, 2015, the Company's significant accounting policies, which are detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2014, have not changed.

Recent Accounting Updates

In May 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update (“ASU”) 2015-07, Fair Value Measurement (Topic 820) - Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The ASU applies to reporting entities that elect to measure the fair value of an investment within the scope of paragraphs 820-10-15-4 through 15-5 using the net asset value per share (or its equivalent) practical expedient in paragraph 820-10-35-59. This ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. It also removes the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The ASU is effective for public companies for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of ASU 2015-07 will not have a material impact on the Company's Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented on the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The standard does not affect the recognition and measurement of debt issuance costs. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The adoption of ASU 2015-03 will not have a material impact on the Company's Consolidated Financial Statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810) - Amendments to the Consolidation Analysis. The new guidance applies to entities in all industries. It makes targeted amendments to the current consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The revised consolidation guidance, among other things, (i) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, (ii) eliminated the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. The standard is effective for the Company beginning on January 1, 2016, however, early adoption is allowed, including in any interim period. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging, which clarified how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the ASU provided that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, when evaluating the nature of the host contract. The guidance is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. The guidance will explicitly require management to assess an entity's ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The new standard will be effective in the first annual period ending after December 15, 2016. Earlier adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.


13
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In August 2014, the FASB issued ASU 2014-13, Consolidation (Topic 810): Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity (a consensus of the FASB Emerging Issues Task Force) which provides guidance on measuring the financial assets and financial liabilities of a consolidated collateralized financing entity (“CFE”), such as CLOs. Entities may make an election to measure the CFE on the basis of either the fair value of the CFE’s financial assets or financial liabilities, whichever is deemed more observable. The guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015 for public companies and early adoption is permitted. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
    
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The standard clarifies the required factors that an entity must consider when recognizing revenue and also requires additional disclosures. ASU 2014-09 is effective for the Company beginning January 1, 2017. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.    

Note 4—Consolidated VIEs

Although the Company consolidates all the assets and liabilities of the Consolidated VIEs (including the Consolidated CLOs and warehouses), its maximum exposure to loss is limited to its investments and beneficial interests in the Consolidated VIEs and the receivables of management fees from the Consolidated VIEs. All of these items are eliminated upon consolidation. The assets of each of the Consolidated VIEs are administered by the trustee of each fund solely as collateral to satisfy the obligations of the Consolidated VIEs. If the Company were to liquidate, the assets of the Consolidated VIEs would not be available to the Company's general creditors, and as a result, the Company does not consider them its assets. Additionally, the investors in the debt and residual interests of the Consolidated VIEs have no recourse to the Company's general assets. Therefore, this debt is not the Company's obligation.

Consolidated CLOs—The following table summarizes the consolidated assets and non-recourse liabilities of the Consolidated CLOs included in the Condensed Consolidated Balance Sheets and the Company's total maximum exposure to loss on these Consolidated CLOs, as follows (1):
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Total Assets
$
12,942,110

 
$
12,557,293

Total Liabilities (non-recourse)
12,794,654

 
12,392,648

 
 
 
 
Maximum exposure to loss:
 
 
 
     Investments and beneficial interests (2)
$
26,361

 
$
25,517

     Receivables
4,688

 
4,200

Total maximum exposure to loss
$
31,049

 
$
29,717


Explanatory Notes: 
________________________________
(1)
In addition, exposure to loss excludes future management fees on the Consolidated VIEs, which are not included in the table.
(2)
Amounts are eliminated in consolidation. As of March 31, 2015 and December 31, 2014, the Company held an investment of $25.6 million and $25.2 million, respectively, directly in the residual interests of its Consolidated CLOs, and through its ownership of other Non-CLO products (see Note 2), the Company invested an additional $0.6 million and $0.3 million, respectively, in the residual interests of its Consolidated CLOs.


14
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Consolidated VIEs—The following table summarizes the Company's consolidated assets and non-recourse liabilities of other Consolidated VIEs included in the Condensed Consolidated Balance Sheets:
 
 
March 31, 2015
 
December 31, 2014
 
 
Consolidated Assets
 
Consolidated Total Non-Recourse Liabilities
 
Maximum Exposure to Loss (1)
 
Consolidated Assets
 
Consolidated Total Non-Recourse Liabilities
 
Maximum Exposure to Loss (1)
 
 
(In thousands)
Warehouses
 
$
25,438

 
$
—

 
$
25,438

 
$
87,880

 
$
66,746

 
$
21,134

Other
 
96,254

 
81,203

 
14,665

 
—

 
—

 
—


Explanatory Note: 
________________________________
(1)
Maximum exposure to loss is generally limited to the Company's investment in the entity. As of both March 31, 2015 and December 31, 2014, the Company consolidated one warehouse. Amounts are eliminated in consolidation.    

Note 5—Fair Value
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair Value Hierarchy—The following tables summarizes the Company's assets and liabilities carried at fair value on a recurring basis, by class and by level: 
 
March 31, 2015
 
December 31, 2014
 
Level 1
 
Level 2
 
Level 3
 
Estimated 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
Estimated Fair Value
 
(In thousands)
 
(In thousands)
Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Investment in Funds
$
—

 
$
—

 
$
27,962

 
$
27,962

 
$
—

 
$
—

 
$
27,169

 
$
27,169

   Loans
—

 
1,996

 
968

 
2,964

 
—

 
2,959

 
967

 
3,926

Structured products & other
—

 
—

 
8,873

 
8,873

 
—

 
—

 
7,604

 
7,604

Subtotal
—

 
1,996

 
37,803

 
39,799

 
—

 
2,959

 
35,740

 
38,699

Consolidated Entities:
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Loans (1)
—

 
10,287,622

 
2,021,789

 
12,309,411

 
—

 
9,184,488

 
2,517,887

 
11,702,375

Corporate bonds
—

 
—

 
498

 
498

 
—

 
—

 
478

 
478

Structured products & other
—

 
438

 
61,741

 
62,179

 
—

 
—

 
69,973

 
69,973

Total Consolidated Entities
—

 
10,288,060

 
2,084,028

 
12,372,088

 
—

 
9,184,488

 
2,588,338

 
11,772,826

Total Assets
$
—

 
$
10,290,056

 
$
2,121,831

 
$
12,411,887

 
$
—


$
9,187,447

 
$
2,624,078

 
$
11,811,525

Liabilities
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Contingent liabilities
$
—

 
$
—

 
$
11,823

 
$
11,823

 
$
—

 
$
—

 
$
12,668

 
$
12,668

Consolidated Entities:
 

 
 

 
 

 
 

 
 

 
 
 
 

 
 

Long-term debt (1)
—

 
—

 
12,403,268

 
12,403,268

 
—

 
—

 
12,049,034

 
12,049,034

Total Consolidated Entities
—

 
—

 
12,403,268

 
12,403,268

 
—

 
—

 
12,049,034

 
12,049,034

Total Liabilities
$
—

 
$
—

 
$
12,415,091

 
$
12,415,091

 
$
—

 
$
—

 
$
12,061,702

 
$
12,061,702

 
Explanatory Note:
______________________________
(1)
The Company generally invests in the residual equity of the CLOs it sponsors and invests in the warehouses it issues. For all assets and liabilities of the Consolidated Entities, the Company elected the fair value option. As of March 31, 2015 and 2014, the total aggregate unpaid principal balance of loans was $12.4 billion and $12.0 billion, respectively, and total contractual principal amounts on long-term debt was $13.0 billion and $12.8 billion, respectively.


15
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Changes in Level 3 Recurring Fair Value Measurements—The following tables summarize by class the changes in financial assets and liabilities measured at fair value classified within Level 3 of the valuation hierarchy. Net realized and unrealized gains (losses) for Level 3 financial assets and liabilities measured at fair value are included in the Condensed Consolidated Statements of Operations. 

 
Level 3 Financial Assets
 
For the Three Months Ended March 31, 2015
 
Investments
 
Investment Assets of Consolidated Entities
 
Loans
 
Investments in Funds
 
Structured Products & Other
 
Total
 
Loans
 
Corporate
Bonds
 
Structured Products & Other
 
Total
 
(In thousands)
Estimated fair value, beginning of period
$
967

 
$
27,169

 
$
7,604

 
$
35,740

 
$
2,517,887

 
$
478

 
$
69,973

 
$
2,588,338

Transfers into Level 3 (1)
—

 


 
—

 
—

 
586,153

 
—

 
—

 
586,153

Transfers out of Level 3 (2)
—

 
—

 
—

 
—

 
(1,143,394
)
 
—

 
—

 
(1,143,394
)
Transfers out due to deconsolidation
—

 
—

 
—

 
—

 
(9,322
)
 
—

 
—

 
(9,322
)
Net realized/unrealized gains (losses)
1

 
237

 
(27
)
 
211

 
14,037

 
20

 
769

 
14,826

Purchases
—

 
556

 
8,795

 
9,351

 
288,071

 
—

 
2,708

 
290,779

Sales
—

 
—

 
(7,499
)
 
(7,499
)
 
(65,139
)
 
—

 
(6,965
)
 
(72,104
)
Settlements
—

 
—

 
—

 
—

 
(166,504
)
 
—

 
(4,744
)
 
(171,248
)
Estimated fair value, end of period
$
968

 
$
27,962

 
$
8,873

 
$
37,803

 
$
2,021,789

 
$
498

 
$
61,741

 
$
2,084,028

Change in unrealized gains (losses) for the period for the assets held as of the end of the period
$
(3
)
 
$
237

 
$
78

 
$
312

 
$
10,648

 
$
20

 
$
628

 
$
11,296

 
For the Three Months Ended March 31, 2014
 
Investments
 
Investment Assets of Consolidated Entities
 
Loans
 
Investments in Funds
 
Structured Products & Other
 
Total
 
Loans
 
Corporate
Bonds
 
Structured Products & Other
 
Total
 
(In thousands)
Estimated fair value, beginning of period
$
510

 
$
—

 
$
—

 
$
510

 
$
1,706,290

 
$
16,220

 
$
93,516

 
$
1,816,026

Transfers into Level 3 (1)
—

 
—

 
—

 
—

 
505,735

 
—

 
—

 
505,735

Transfers out of Level 3 (2)
—

 
—

 
—

 
—

 
(557,007
)
 
—

 
—

 
(557,007
)
Transfers in due to consolidation or acquisition
—

 
15,964

 
—

 
15,964

 
21,202

 
—

 
—

 
21,202

Transfers between classes
(510
)
 
—

 
—

 
(510
)
 
510

 
—

 
—

 
510

Net realized/unrealized gains (losses)
(7
)
 
—

 
2

 
(5
)
 
(1,665
)
 
514

 
3,527

 
2,376

Purchases
1,522

 
—

 
1,878

 
3,400

 
452,103

 
—

 
—

 
452,103

Sales
—

 
—

 
—

 
—

 
(148,497
)
 
(10,841
)
 
(595
)
 
(159,933
)
Settlements
(3
)
 
—

 
—

 
(3
)
 
(152,338
)
 
—

 
(962
)
 
(153,300
)
Estimated fair value, end of period
$
1,512

 
$
15,964

 
$
1,880

 
$
19,356

 
$
1,826,333

 
$
5,893

 
$
95,486

 
$
1,927,712

Change in unrealized gains (losses) for the period for the assets held as of the end of the period
$
(7
)
 
$
—

 
$
2

 
$
(5
)
 
$
944

 
$
247

 
$
3,820

 
$
5,011



Explanatory Notes:
______________________________
(1)
Transfers in represent loans currently valued by a third party pricing service using composite prices determined using less than two quotes, an internally developed pricing model or broker quotes and that were previously marked by a third party pricing service using composite prices determined from two or more quotes.
(2)
Transfers out represent loans previously valued by an internally developed pricing model, broker quotes, or a third party pricing service using composite prices determined using less than two quotes and are now being marked by a third party pricing service using composite prices determined from two or more quotes.


16
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 
Level 3 Financial Liabilities
 
For the Three Months Ended March 31, 2015
 
For the Three Months Ended March 31, 2014
 
Contingent Liabilities
 
Long-term Debt of Consolidated Entities
 
Total
 
Contingent Liabilities
 
Long-term Debt of Consolidated Entities
 
Total
 
(In thousands)
Estimated fair value, beginning of period
$
12,668

 
$
12,049,034

 
$
12,061,702

 
$
16,961

 
$
10,484,975

 
$
10,501,936

Sale of investments in Consolidated CLOs (1)
—

 
—

 
—

 
—

 
32,001

 
32,001

Transfer due to deconsolidation or sale
—

 
(51,000
)
 
(51,000
)
 
—

 
15,630

 
15,630

Net realized/unrealized (gains) losses
713

 
189,451

 
190,164

 
229

 
30,945

 
31,174

Purchases
—

 
33,100

 
33,100

 
—

 
9,367

 
9,367

Issuances
—

 
601,320

 
601,320

 
—

 
1,110,823

 
1,110,823

Settlements (2)
(1,558
)
 
(418,637
)
 
(420,195
)
 
(2,216
)
 
(959,095
)
 
(961,311
)
Estimated fair value, end of period
$
11,823

 
$
12,403,268

 
$
12,415,091

 
$
14,974

 
$
10,724,646

 
$
10,739,620

Change in unrealized gains (losses) for the period for the liabilities outstanding as of the end of the period
$
713

 
$
113,567

 
$
114,280

 
$
(229
)
 
$
34,227

 
$
33,998


Explanatory Notes:
__________________________
(1)
Represents the Company's sales of its residual interests in the Consolidated CLOs. The sale removes the requirement to consolidate the CLOs, therefore, debt and/or subordinated notes of the CLOs are no longer eliminated in consolidation.
(2)
For Contingent Liabilities, amount represents payments made related to the contingent liabilities assumed for the Merger with Legacy CIFC.

Fair Value Methodologies of Financial Instruments

The following is a description of the Company's valuation methodologies for financial instruments measured at fair value by class as required by ASC Topic 820, including the general classification of such instruments pursuant to the valuation hierarchy.     
    
Investments in Funds—Investments in Funds represents the Company's investment in certain credit funds where the Company co-invests with third party investors. The fair value of investments in funds are generally determined based on the Company's proportionate share of the Net Asset Value ("NAV") of the fund. When the Company and third party investors have the ability to redeem their investments at their respective proportionate share of NAV at, or within three months of the reporting date, the investments at fair value are classified as Level 2 and when the Company and third party investors do not have the ability to redeem their investment at their proportionate share of NAV at, or within three months of the reporting date, the investments at fair value are classified as Level 3. The NAV calculation includes significant inputs including the valuation of assets and liabilities of the fund. A third-party pricing service provides the underlying asset prices in the fund.

Loans—Loans are generally valued via a third-party pricing service. The value represents a composite of the mid-point in the bid-ask spread of broker quotes or is based on the composite price of a different tranche of the same or similar security if broker quotes are unavailable for the specific tranche the Company owns. The third-party pricing service provides the number of quotes used in determining the composite price, a factor that the Company uses in determining the observability level of the inputs to the composite price. When the fair value of the loan investments is based on a composite price determined using 2 or more quotes the composite price is considered to be based on significant observable inputs and classified as Level 2 within the fair value hierarchy. When the fair value of certain loan investments is based on a composite price determined using less than two quotes, the composite price is considered to be based on significant unobservable inputs. In these instances, the Company performs certain procedures on a sample basis to determine that composite prices approximate fair market value. Alternative methodologies are used to value the loans such as a comparable company pricing model (an internally developed model using composite or other observable comparable market inputs) or an internally developed model using data including unobservable market inputs. Accordingly, loans valued using alternative methodologies are classified as Level 3 within the fair value hierarchy.
 

17
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Corporate Bonds—Corporate bonds are generally valued via a third-party pricing service.  The inputs to the valuation include recent trades, discount rates and forward yield curves. Although the inputs used in the third-party pricing services' valuation model are generally obtained from active markets and are observable, the third-party pricing service does not provide sufficient visibility into their pricing model. When a value is unavailable, the Company uses an internally developed discounted cash flow model that includes unobservable market inputs or broker quotes.  Accordingly corporate bonds are classified as Level 3 within the fair value hierarchy.
 
Structured Products & Other—Structured products and other primarily represents the fair value of investments in third party CLOs or CDOs which are generally valued via a third-party pricing service. The inputs to the valuation include recent trade information, discount rates, forward yield curves, and loan level information (including loan loss, recovery and default rates, prepayment speeds and other security specific information obtained from the trustee and other service providers related to the product being valued). Although the inputs used in the third-party pricing service's valuation model are generally obtained from active markets, the third-party pricing service does not provide a detailed analysis for each security valued. The Company performs certain procedures on a sample basis to determine that prices approximate fair market value. When a value from a third-party pricing service is unavailable, the value may be based on an internally developed discounted cash flow model which includes unobservable market inputs or by broker quote.  Inputs to the internally developed model include the structure of the product being valued, estimates related to loan default, recovery and discount rates. Accordingly these assets are classified as Level 3 within the fair value hierarchy.

In addition, included in Structured Products and Other is the Company's warehouse total return swap ("TRS", see Note 7). The fair value of the Warehouse TRS is calculated as the sum of (i) the change in fair value of the reference obligations (SSCL's are valued at a composite of the mid-point in the bid-ask spread of broker quotes) since they became reference obligations (ii) net realized gains (losses) on reference obligations sold during the period and (iii) interest income earned on the reference obligations, less an amount equal to LIBOR plus an agreed upon margin on the outstanding notional amount of the reference obligations. The Warehouse TRS is classified as Level 2 within the fair value hierarchy.

 Contingent Liabilities—The fair value of contingent liabilities is based on a discounted cash flow model. The model is based on projections of the relevant future management fee cash flows and utilizes both observable and unobservable inputs in the determination of fair value. Significant inputs to the valuation model includes the structure of the underlying CLO and estimates related to loan default, recovery and discount rates.  Contingent liabilities are classified as Level 3 within the fair value hierarchy.
 
Long-Term Debt of the Consolidated CLOs & Warehouses—Long-term debt of the Consolidated CLOs and Warehouses consists of debt and subordinated notes of the Consolidated CLOs or Warehouses. The fair value of debt and subordinated notes are classified as Level 3 within the fair value hierarchy. Effective June 30, 2014, the fair value of the debt and subordinated notes of the Consolidated CLOs or Warehouses are valued via a third-party pricing service. The inputs to the valuation include recent trade information, discount rates, forward yield curves, and loan level information (including loan loss, recovery and default rates, prepayment speeds and other security specific information obtained from the trustee and other service providers related to the product being valued). Although the inputs used in the third-party pricing service's valuation model are generally obtained from active markets, the third-party pricing service does not provide a detailed analysis for each security valued. The Company performs certain procedures on a sample basis to determine that prices approximate fair market value. When a value from a third-party pricing service is unavailable, the value may be based on an internally developed discounted cash flow model which includes unobservable market inputs or by broker quote.  Inputs to the internally developed model include the structure of the product being valued, estimates related to loan default, recovery and discount rates. Accordingly these assets are classified as Level 3 within the fair value hierarchy.



18
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Quantitative Information about Level 3 Assets & Liabilities

The disclosure provided below provides quantitative information about the significant unobservable inputs used in the valuation of the contingent liabilities of legacy CLOs (see Note 9).
 
March 31, 2015
 
 
 
March 31, 2015
 
December 31, 2014
 
Impact of Increase in Input on Fair Value
Measurement (1)
Financial Liabilities

Fair Value
(in thousands)
Valuation Technique
Significant Unobservable Input
 



Range
 


Range
 
Contingent Liabilities
$
11,823

Discounted cash flows
Discount rate (2)
 
1.2%-12.5%
 
1.2%-12.5%
 
Decrease
 
 
 
Default rate (3)
 
2.0%
 
2.0%
 
Decrease
 
 
 
Recovery rate (3)
 
70%
 
70%
 
Increase
 
 
 
Pre-payment rate (3)
 
40%
 
35-40%
 
Decrease
 
 
 
Reinvestment spread of assets above LIBOR
 
3.0-3.8%
 
3.0-3.8%
 
Increase
 
 
 
Reinvestment price of assets
 
100.0
 
100.0
 
Increase

Explanatory Notes:
____________________________
(1)
The impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
(2)
The discount rate varies by type of management fee (senior management fee, subordinated management fee, or incentive fee), the priority of that management fee in the waterfall of the CLO and the relative risk associated with the respective management fee cash flow projections. Amounts are presented as a spread over LIBOR.
(3)
Generally an increase in the default rate would be accompanied by a directionally opposite change in assumption for the recovery and pre-payment rates.

Carrying Value and Estimated Fair Value of Financial Assets and Liabilities

The Company has not elected the fair value option for certain financial liabilities. A summary of the carrying value and estimated fair value of those liabilities are as follows:
 
 
As of March 31, 2015
 
 
As of December 31, 2014
 
Carrying
Value
 
Estimated
Fair
Value
 
 
Carrying
Value
 
Estimated
Fair
Value
 
(In thousands)
Financial liabilities:
 

 
 

 
 
 

 
 

Long-term debt:
 

 
 

 
 
 

 
 

Junior Subordinated Notes (1)
$
120,000

 
$
54,254

 
 
$
120,000

 
$
57,314


Explanatory Note:
________________________________
(1)
The Junior Subordinated Notes include both the March and October Junior Subordinated Notes (see Note 10). The estimated fair values of the Junior Subordinated Notes were determined using a discounted cash flow model which utilizes significant unobservable inputs, including discount rates, yield and forward LIBOR curve assumptions.  This methodology is classified as Level 3 within the fair value hierarchy.

The carrying value of all of the following approximate the fair value of the financial instruments and are considered Level 1 in the fair value hierarchy: cash and cash equivalents, restricted cash and cash equivalents, due from brokers, receivables, due to brokers and deferred purchase payments. In addition, amounts in the Consolidated Entities related to due from brokers, restricted cash and cash equivalents, receivables and due to brokers also approximate the fair value of the instruments and are all considered Level 1 on the fair value hierarchy.

Investments of the Consolidated Entities are diversified over multiple industries. In addition, applicable agreements to CLOs and warehouses outline industry concentration limits. Management does not believe the Company has any significant concentration risks.


19
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 6—Net Results of Consolidated Entities

The following table is a summary of the components of "Net results of Consolidated Entities":
 
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
Investment income
$
143,846

 
$
120,443

Interest expense
(50,753
)
 
(36,073
)
Net investment income
93,093

 
84,370

Net gain (loss) on investments
117,982

 
2,759

Net gain (loss) on liabilities
(189,451
)
 
(30,294
)
Net gain (loss) on other investments and derivatives
438

 
106

Net gain (loss) from activities of Consolidated Entities
$
22,062

 
$
56,941

Expenses of Consolidated Entities
(11,761
)
 
(7,859
)
Net Results of Consolidated Entities
$
10,301

 
$
49,082



                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
Note 7—Derivative Instruments and Hedging Activities

Total Return Swap—During the three months ended March 31, 2015, the Company, through a warehouse SPV, entered into a TRS agreement with a third party bank, in lieu of financing. Under the TRS, the Company received the income on the reference obligations (including gains on terminated reference obligations) and paid the counterparty an amount equal to three month LIBOR plus a margin on the outstanding notional amount of the reference obligations and losses on terminated reference obligations. The Company also consolidates this Warehouse SPV as it is a variable interest entity in which it is deemed the primary beneficiary (see Note 2). As of March 31, 2015, the notional amount of SSCLs included as reference obligations of the Warehouse TRS was $96.2 million and the Warehouse SPV had $25.0 million (of which $25.0 million represented the Company's investment) of cash posted as collateral under the TRS, which is included within "Restricted cash and cash equivalents" of Consolidated VIEs on the Consolidated Balance Sheets.

During the three months ended March 31, 2014, the Company, through a warehouse SPV, entered into a TRS agreement with a third party bank. This warehouse agreement was terminated as of December 31, 2014.

During the three months ended March 31, 2015 and 2014, the Company recognized net income related to derivative instruments of $0.4 million and $0.1 million, respectively, in "Net results of Consolidated Entities" on the Condensed Consolidated Statement of Operations.


20
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 8—Intangible Assets

Intangible assets are comprised of the following:
 
 
Weighted-Average Remaining Estimated Useful Life
 
Gross Carrying
Amount (1)
 
Accumulated
Amortization (2)
 
Net Carrying
Amount
 
(In years)
 
(In thousands)
March 31, 2015:
 
 
 

 
 

 
 

Investment management contracts
3.0
 
$
72,660

 
$
63,528

 
$
9,132

Referral arrangement
4.5
 
3,810

 
1,524

 
2,286

Non-compete agreements
3.0
 
1,535

 
985

 
550

Trade name
6.0
 
1,250

 
500

 
750

Total intangible assets
 
 
$
79,255

 
$
66,537

 
$
12,718

December 31, 2014:
 
 
 

 
 

 
 

Investment management contracts
3.2
 
$
72,941

 
$
61,723

 
$
11,218

Referral arrangement
4.8
 
3,810

 
1,334

 
2,476

Non-compete agreements
3.2
 
1,535

 
936

 
599

Trade name
6.3
 
1,250

 
469

 
781

Total intangible assets
 
 
$
79,536

 
$
64,462

 
$
15,074


Explanatory Notes:
_________________________________
(1)
Gross carrying amounts have been adjusted for impaired assets as of the date presented.
(2)
During the three months ended March 31, 2015 and 2014, the Company recorded amortization expense on its intangible assets of $2.1 million and $2.9 million, respectively.

The following table presents expected amortization expense of the existing intangible assets:
 
(In thousands)
2015 (nine months remaining)
$
4,631

2016
3,818

2017
2,172

2018
1,527

2019
413

Thereafter
157

 
$
12,718


During the three months ended March 31, 2015, the Company received notice from holders of a certain CLO exercising their right to call the CLO for redemption. As a result of this call, the Company recorded a $0.3 million expense to fully impair the intangible asset associated with this management contract.


21
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 9—Contingent Liabilities
 
The Company's Contingent Liabilities are as follows:
 
 
March 31, 2015
 
December 31, 2014
 
(In thousands)
Contingent liabilities from the Merger (related party) - Note 14
$
11,347

 
$
11,693

Contingent liabilities value assumed through the Merger
476

 
975

   Contingent liabilities
$
11,823

 
$
12,668

 
Contingent Liabilities—In addition to the consideration paid in connection with the Merger, the Company was required to pay CIFC Parent Holdings LLC ("CIFC Parent") a portion of incentive fees earned on six CLOs managed by CIFCAM (the "Legacy CIFC CLOs"). The terms of these payments were as follows: (i) the first $15.0 million of incentive fees received (which was fulfilled in 2013), (ii) 50% of any incentive fees in excess of $15.0 million in aggregate received from the Legacy CIFC CLOs by the combined company over ten years from April 13, 2011 (the "Merger Closing Date") and (iii) payments relating to the present value of any such incentive fees from the Legacy CIFC CLOs that remain payable to the combined company after the tenth anniversary of the Merger Closing Date. During the three months ended March 31, 2015 and 2014, the Company made total payments of $1.0 million and $2.0 million, respectively, related to these contingent liabilities. 
 
In addition, the Company also assumed contingent liabilities during the merger that primarily represent contingent consideration related to Legacy CIFC’s acquisition of CypressTree in December 2010. The assumed contingent liabilities are based on a fixed percentage of certain management fees from the CypressTree CLOs. These fixed percentages vary by CLO. The minimum fixed percentage was 39% since July 2013. During the three months ended March 31, 2015 and 2014, the Company made payments of $0.6 million and $0.2 million, respectively, related to these contingent liabilities.
 
The following table presents the gain (loss) related to the changes in fair value of contingent liabilities recorded within "Net gain (loss) on liabilities" on the Condensed Consolidated Statements of Operations:
 
 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
 
(In thousands)
Contingent liabilities from the Merger
 
$
(651
)
 
$
(221
)
Contingent liabilities assumed through the Merger
 
(62
)
 
(8
)
Total net gain (loss) on contingent liabilities
 
$
(713
)
 
$
(229
)


22
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 10—Long-Term Debt
 
The following table summarizes the Company's long-term debt:
 
 
March 31, 2015
 
December 31, 2014
 
Carrying
Value
 
Current
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
Carrying
Value
 
Current
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
(In thousands)
 
 
 
(In years)
 
(In thousands)
 
 
 
(In years)
Recourse debt:
 

 
 

 
 
 
 
 
 
 
 
March Junior Subordinated Notes (1)
$
95,000

 
1.00
%
 
20.6
 
$
95,000

 
1.00
%
 
20.8
October Junior Subordinated Notes (2)
25,000

 
3.75
%
 
20.6
 
25,000

 
3.73
%
 
20.8
Total Subordinated Notes Debt
$
120,000

 
1.57
%
 
20.6
 
$
120,000

 
1.57
%
 
20.8
 
 
 
 
 
 
 
 
 
 
 
 
Non-recourse Consolidated Entities' debt:
 

 
 

 
 
 
 
 
 
 
 
Consolidated CLOs (3)
$
12,403,268

 
1.84
%
 
8.7
 
$
11,998,034

 
1.77
%
 
8.7
Warehouses (4)
—

 
—
%
 
n/m
 
51,000

 
1.89
%
 
n/m
Total non-recourse Consolidated Entities' debt
$
12,403,268

 
1.84
%
 
8.7
 
$
12,049,034

 
1.77
%
 
8.7
Total long-term debt
$
12,523,268

 


 

 
$
12,169,034

 


 


Explanatory Notes:
________________________________
(1)
March Junior Subordinated Notes bear interest at an annual rate of 1% through April 30, 2015 and three month LIBOR plus 2.58% until maturity on October 30, 2035.
(2)
October Junior Subordinated Notes bear interest at an annual rate of three month LIBOR plus 3.50% and mature on October 30, 2035.
(3)
Long-term debt of the Consolidated CLOs is recorded at fair value. The subordinated notes of Consolidated CLOs do not have a stated interest rate. Therefore, they are excluded from the calculation of the weighted average borrowing rate. As of March 31, 2015 and December 31, 2014, the par value of the Consolidated CLOs long-term debt (including subordinated notes) was $13.0 billion and $12.9 billion, respectively.
(4)
Long-term debt of warehouses not held by the Company is recorded at fair value. The fair value excludes the preferred shares of warehouses not held by the Company. As warehouses are generally terminated before the end of their terms, they are excluded from the calculation of the weighted average remaining maturity.

Recourse Debt
Junior Subordinated Notes—The $95.0 million aggregate principal amount of junior subordinated notes (the "March Junior Subordinated Notes") are governed by a junior subordinated indenture (the "March Note Indenture"), dated March 4, 2010, between the Company and the trustee. The $25.0 million aggregate principal amount of junior subordinated notes (the "October Junior Subordinated Notes") are governed by a junior subordinated indenture (the "October Note Indenture"), dated October 20, 2010, between the Company and the trustee. The March Note Indenture and October Note Indenture contain certain restrictive covenants including a restricted payments covenant that restricts the Company's ability to pay dividends or make distributions in respect of the Company's equity securities, subject to a number of exceptions and conditions.
Non-Recourse Consolidated Entities Debt
Consolidated CLOs—During the three months ended March 31, 2015, the Consolidated CLOs issued $0.6 billion of debt, paid down $0.3 billion of their outstanding debt, made net borrowings under revolving credit facilities of $33.1 million, and distributed $73.3 million to the holders of their subordinated notes. During the three months ended March 31, 2014, the Consolidated CLOs issued $0.6 billion of debt, paid down $0.4 billion of their outstanding debt, made net borrowings under revolving credit facilities of $9.4 million, and distributed $62.6 million to the holders of their subordinated notes.
The carrying value of the assets of the Consolidated CLOs, which are the only assets to which the Consolidated CLO debt holders have recourse for repayment was $12.9 billion and $12.6 billion as of March 31, 2015 and December 31, 2014, respectively.    

23
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Consolidated Entities—The debt and equity holders have recourse to the total assets of the respective Consolidated Entity's assets. See Note 4 for further details of the Company's exposure to loss on Consolidated Entities.

Note 11—Equity
 
Common Stock—During the three months ended March 31, 2015 and 2014, the Company issued shares of common stock of 107,986 and 100,000, respectively, to certain employees in connection with their exercise of stock options and the vesting of Restricted Stock Units ("RSUs").

During each of the three months ended March 31, 2015 and 2014, the Company declared aggregate quarterly dividends of $0.10 per common share. Subsequent to quarter end, the Company declared a cash dividend of $0.10 per share. The dividend will be paid on June 15, 2015 to shareholders of record as of the close of business on May 25, 2015 (see Note 16).

Treasury Stock/Stock Repurchases—On March 29, 2012, the Board of Directors ("the Board") approved a $10.0 million share repurchase program. Shares may be repurchased from time to time and in such amounts as market conditions warrant, subject to price ranges set by management and regulatory considerations. The share repurchase program does not have an expiration date. There were no repurchases made during the three months ended March 31, 2015 and 2014. As of March 31, 2015, the Company was authorized to repurchase up to $5.4 million of its common stock under its share repurchase program.

Stock-based Compensation—The Company's stock-based awards to certain of its employees and directors are recognized within "Employee compensation and benefits" and "General and administrative expenses", respectively, on the Consolidated Statements of Operations. These awards are issued pursuant to the CIFC Corp. 2011 Stock Option and Incentive Plan (the “2011 Stock Plan”). During the three months ended March 31, 2015 and 2014, the Company recorded total stock-based compensation expense for its Stock Options and RSUs of $1.7 million and $0.1 million, respectively. The Company also recognized stock-based compensation expense related to the Profit Interest Awards (described in our Annual Report on Form 10-K for the year ended December 31, 2014). During the three months ended March 31, 2014, the Company recorded compensation expense of $0.1 million.

As of March 31, 2015, there was $11.5 million of estimated unrecognized compensation expense related to unvested stock option and RSU awards, net of estimated forfeitures. The remaining weighted average vesting period of stock options and RSUs are 0.86 years and 4.85 years, respectively.

Stock Options—The following table summarizes certain Stock Options activity:
 
Number of Shares
Underlying Stock-Based Awards
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
 
Aggregate Intrinsic
Value
 
 
 
 
 
(In years)
 
(In thousands)
Outstanding at December 31, 2014
3,635,313

 
$
6.68

 
5.16
 
$
6,146

Exercised (1)
(25,000
)
 
4.83

 

 


Forfeited
(12,500
)
 
8.65

 

 


Outstanding at March 31, 2015
3,597,813

 
$
6.68

 
4.97
 
$
6,060

Exercisable at March 31, 2015
2,716,120

 
$
6.45

 
3.99
 
$
5,061

Vested and Expected to vest at March 31, 2015 (2)
3,548,800

 
$
6.67

 
4.93
 
$
6,017


Explanatory Notes:
________________________________
(1)
During the three months ended both March 31, 2015 and 2014, total intrinsic value of options exercised was $0.1 million and $0.3 million.
(2)
Includes a reduction to outstanding options at period end for expected forfeiture rate over the life of the options.

RSUs—Each RSU outstanding represents the right to receive one share of the Company's common stock, subject to acceleration upon the occurrence of certain specified events. The number of RSUs may be adjusted, as determined by the Board, in connection with any stock dividends, stock splits, subdivisions or consolidations of shares (including reverse stock splits) or similar changes in the Company's capitalization. During the three months ended March 31, 2015, the Company granted to employees 230,000 RSUs.



24
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During the three months ended March 31, 2015, the Company granted 40,000 service-based RSUs to certain employees. The awards vest over three years with 1/3 initially vesting on December 31, 2015 and the remainder of the awards vesting ratably on a quarterly basis for the remaining two years (until the last vesting date of December 31, 2017). Additionally, the Company also granted 190,000 performance-based RSUs to certain employees which cliff vest on January 1, 2018. Neither the service-based nor the performance-based awards are entitled to dividends: therefore the fair value of these awards were determined using the Company's grant date common stock price less the present value of the expected dividends forgone during the vesting period.

The weighted average grant date fair value of all awards granted above during the three months ended March 31, 2015 was $7.22. The following table summarizes restricted stock units activity:
 
For the Three Months Ended March 31, 2015
Restricted stock units outstanding, beginning of period
1,248,444

Granted
230,000

Vested
(107,000
)
Forfeited (1)
(6,685
)
Restricted stock units outstanding, end of period
1,364,759


Explanatory Note:
_________________________________
(1)
The forfeited stock-based awards are returned to the grant pool for reissuance under the 2011 Stock Plan.

Warrants—The warrants held by DFR Holdings ("DFR Warrants") provide the holder the right to purchase 2.0 million shares of the Company's voting common stock. The DFR Warrants have an exercise price of $6.375 per share, are immediately exercisable and are scheduled to expire on September 24, 2015. 

Note 12 —Earnings (Loss) Per Share

The following table presents the calculation of basic and diluted earnings (loss) per share ("EPS"):
 
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except per share data)
Net income (loss) attributable to CIFC Corp. - basic
$
5,428

 
$
235

Net income (loss) attributable to CIFC Corp. - diluted
$
5,428

 
$
235

 
 
 
 
Weighted-average shares - basic
25,279

 
20,839

Stock options (1)
697

 
593

Warrants
458

 
494

Unvested RSUs (1)
138

 
11

Weighted-average shares - diluted
26,573

 
21,938

 
 
 
 
Earnings (loss) per share
 
 
 

Basic
$
0.21

 
$
0.01

Diluted
$
0.20

 
$
0.01

 

Explanatory Note:
________________________________
(1)
For the three months ended March 31, 2015 and 2014, the Company excluded anti-dilutive stock options from the calculation of diluted EPS of 0.7 million and 0.9 million, respectively. For the three months ended March 31, 2015, the Company excluded anti-dilutive RSUs from the calculation of diluted EPS of 0.1 million.


25
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 13—Income Taxes

The following table summarizes the Company's tax provision:
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Income (loss) before income taxes
$
(4,173
)
 
$
36,985

Income tax expense
$
3,087

 
$
12,404

Effective income tax rate
(74.0
)%
 
33.5
%

The difference between the statutory tax rate and the effective tax rate, as well as the change in the effective tax rate compared with the prior year is primarily attributable to the income/(loss) related to non-controlling interests of Consolidated VIEs. This income / (loss) is included in book income/(loss) before income taxes but is not taxable income /(loss) to CIFC Corp. The effective tax rate for the period ended March 31, 2014 was further impacted by a non-recurring expense of $6.4 million from the write-down of deferred tax assets related to the New York State law change.
During the three months ended March 31, 2015, there were no material changes to the Company’s uncertain tax positions and the Company believes there will be no significant increases or decreases to the uncertain tax positions within 12 months of the reporting date.

Note 14—Related Party Transactions

DFR Holdings—As of each March 31, 2015 and December 31, 2014, DFR Holdings owned approximately 18.8 million of shares of the Company’s common stock. Accordingly, related party transactions included quarterly dividends (see Note 11). In addition, DFR Holdings held warrants that provide the holder the right to purchase 2.0 million shares of the Company's voting common stock which are scheduled to expire on September 24, 2015.

In August 2014, the Company entered into a consulting agreement with DFR Holdings whereby DFR Holdings agreed to provide CIFC with ongoing advisory services such as the participation in financial, tax and strategic planning/budgeting, investor interface, new product initiatives, fund raising and recruiting. During the three months ended March 31, 2015, the Company paid $2.0 million to DFR Holdings in connection with the consulting agreement and expensed professional fees of $0.5 million.

In addition, pursuant to the Third Amended Restated Stockholders Agreement with DFR Holdings dated December 2, 2013, the Company agreed to nominate to our Board of Directors six directors designated by DFR Holdings (the "DFR Designees"). The number of directors that can be designated by DFR Holdings will be reduced in the event that DFR Holdings decreases its ownership (on a diluted basis) in CIFC. If DFR Holdings' ownership falls below 5%, it will lose the right to designate any director. During both the three months ended March 31, 2015 and 2014, the DFR Designees earned an aggregate $0.2 million related to their services.    
Other—As of March 31, 2015 and December 31, 2014, a board member held $1.0 million of income notes in one of the Company's sponsored CLOs, CIFC Funding 2013-II, Ltd., through an entity in which he is a 50% equity holder.
Funds—As of March 31, 2015 and December 31, 2014, key employees and directors of the Company's board (including related entities) invested in four different funds for both periods, which the Company invests in and manages and held aggregate investments of $5.7 million and $4.7 million, respectively. Key employees are not charged a management fee on their investment. Directors were charged a management fee, similar to certain other investors. For the three months ended March 31, 2015 and 2014, these fees were de minimis.


26
CIFC CORP. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 15—Commitments and Contingencies
Legal Proceedings—In the ordinary course of business, the Company may be subject to legal and regulatory proceedings and examinations that are generally incidental to the Company's ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings or examinations, the Company does not believe their disposition will have a material adverse effect on the Company's Consolidated Financial Statements.
Lease Commitments—The Company has an obligation related to the lease of its premises that was disclosed in its Annual Report on Form 10-K for the year ended December 31, 2014. During both the three months ended March 31, 2015 and 2014, total occupancy expense was $0.4 million.  
Unfunded Loan Commitments—Certain of the Consolidated CLOs have debt structures which include unfunded revolvers. Unfunded debt commitments represent the estimated fair value of those unfunded revolving debt facilities.
Unfunded loan commitments represent the estimated fair value of those unfunded revolvers of loan facilities. As of both March 31, 2015 and December 31, 2014, the Consolidated CLOs had unfunded investment commitments on loans of $5.9 million. The timing and amount of additional funding on these loans are at the discretion of the borrower, to the extent the borrower satisfies certain requirements and provides certain documentation. The Company does not have any obligation to fund these commitments.

Note 16—Subsequent Events

Subsequent to quarter end, the Company declared a cash dividend of $0.10 per share. The dividend will be paid on June 15, 2015 to shareholders of record as of the close of business on May 25, 2015.

Subsequent to quarter end, the Company priced a CLO that represented approximately $500 million of new loan-based AUM.



27

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion together with our Condensed Consolidated Financial Statements and notes thereto included in Part I—Item 1. Condensed Consolidated Financial Statements and Notes (Unaudited) of this Quarterly Report on Form 10-Q (the “Quarterly Report”).  The statements in this discussion regarding the industry outlook and our expectations regarding the future performance of our business and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in Special Note Regarding Forward-Looking Statements and Part I—Item 1A. Risk Factors in our 2014 Annual Report on Form 10-K. Unless otherwise noted or the context otherwise requires, we refer to CIFC Corp. as “CIFC,” to CIFC and its subsidiaries as “we,” “us,” “our,” “our company,” or “the Company,” to CIFC Asset Management LLC, one of our wholly-owned subsidiaries, as “CIFCAM,” to Deerfield Capital Management LLC, one of our indirect wholly-owned subsidiaries, as “DCM,” to CypressTree Investment Management, LLC, one of our indirect wholly-owned subsidiaries, as “CypressTree,” to Columbus Nova Credit Investments Management, LLC, one of our indirect wholly-owned subsidiaries, as “CNCIM.”

Overview
 
CIFC Corp. (“CIFC” and, together with its subsidiaries, “we” or "us") is a Delaware corporation headquartered in New York City. We are a fundamentals-based, relative value, alternative credit manager. Our primary business is to provide investment management services for investment products. We manage assets for various types of investors, including pension funds, hedge funds, other asset management firms, banks, insurance companies and other types of institutional investors across the world.
Our assets under management (“AUM”) are primarily comprised of Collateralized Loan Obligations ("CLOs"), credit funds, separately managed accounts ("SMAs"), and other-loan based products (together, with credit funds and SMAs, "Non-CLO products"). We manage these credit products through opportunistic investment strategies where we seek to generate both current income and capital appreciation, primarily through senior secured corporate loans (“SSCLs”) investments and, to a lesser extent, other investments. We also manage Collateralized Debt Obligations (“CDOs”) which we do not expect to issue in the future.

We have three primary sources of revenue: management fees, incentive fees and investment income. Management fees are generally earned based on the amount of assets managed (or AUM), incentive fees are earned based on the performance of the funds and investment income is earned based on the performance of our direct investment in our products. See Note 2.

As of March 31, 2015, DFR Holdings LLC ("DFR Holdings"), on a fully-diluted basis, owns approximately 70% of our common stock.

Executive Overview

During the first quarter of 2015, issuance in the CLO primary market continued at the robust pace seen in 2014. Overall, the loan market remains well supported by favorable supply / demand technicals and solid credit fundamentals. Given low default conditions, the relative value of the asset class remains attractive. We issued our first CLO of 2015 for $600.0 million increasing our loan-based AUM to a record $14.0 billion, representing a year over year increase of 14%. Management Fees increased by $2.1 million or 15% as compared to the same period in the prior year.
 
For the three months ended March 31, 2015, we reported GAAP net income attributable to CIFC Corp. of $5.4 million, as compared to $0.2 million in the same period of the prior year. We reported Economic Net Income ("ENI", a non-GAAP measure) of $11.1 million for the year ended March 31, 2015, as compared to $13.2 million for the prior year. See "Results of Condensed Consolidated Operations" for the detailed discussion.

Fee Earning AUM

Fee Earning Assets Under Management ("Fee Earning AUM" or "AUM") refers to the assets managed by us on which we are paid management fees and/or incentive fees. Generally, with respect to CLOs, management fees are paid to CIFC based on the aggregate collateral balance at par plus principal cash, and with respect to Non-CLO funds, the value of the assets in such funds (excluding non-fee earning AUM such as our investments).
The following table summarizes the Fee Earning AUM, for which we are paid a management fee, by significant investment product category (1)(2):

28

 
 
March 31, 2015
 
December 31, 2014
 
March 31, 2014
 
Number of Accounts
 
Fee Earning AUM
 
Number of Accounts
 
Fee Earning AUM
 
Number of Accounts
 
Fee Earning AUM
 
 
 
(In thousands)
 
 
 
(In thousands)
 
 
 
(In thousands)
Post 2011 CLOs
14

 
$
8,005,579

 
13

 
$
7,402,986

 
9

 
$
4,732,728

Legacy CLOs (3)
18

 
4,583,387

 
19

 
4,960,877

 
19

 
6,423,605

     Total CLOs
32

 
12,588,966

 
32

 
12,363,863

 
28

 
11,156,333

Credit Funds & SMAs (4)
8

 
777,040

 
8

 
593,456

 
5

 
458,202

Other Loan-Based Products (4)
2

 
667,654

 
2

 
719,170

 
1

 
730,918

Total Non-CLOs (4)
10

 
1,444,694

 
10

 
1,312,626

 
6

 
1,189,120

Total Loan-Based AUM
42

 
14,033,660

 
42

 
13,676,489

 
34

 
12,345,453

ABS and Corporate Bond CDOs
8

 
667,268

 
8

 
687,555

 
8

 
768,609

Total Fee Earning AUM
50

 
$
14,700,928

 
50

 
$
14,364,044

 
42

 
$
13,114,062


Explanatory Notes:
_________________________________
(1)
We do not expect to issue new CDOs in the future. Fee Earning AUM on CDOs is expected to continue to decline as these funds run-off per their contractual terms.
(2)
Fee Earning AUM is based on the latest available monthly report issued by the trustee or fund administrator prior to the end of the period, and may not tie back to Consolidated GAAP financial statements.
(3)
Legacy CLOs represent all managed CLOs issued prior to 2011, including CLOs acquired since 2011 but issued prior to 2011.
(4)
Management fees for Non-CLO products vary by fund and may not be similar to a CLO.

Fee Earning AUM activities are as follows:
 
 
For the Three Months Ended
 
Last Twelve Months
 
 
March 31, 2015
 
 
(In thousands)
Total loan-based AUM - Beginning Balance
 
$
13,676,489

 
$
12,345,453

CLO New Issuances
 
600,000

 
3,249,528

CLO Principal Paydown
 
(295,804
)
 
(1,675,450
)
CLO Calls, Redemptions and Sales
 
(76,437
)
 
(163,130
)
Fund Subscriptions
 
196,230

 
355,960

Fund Redemptions
 
(39,327
)
 
(65,952
)
Other (1)
 
(27,491
)
 
(12,749
)
Total loan-based AUM - Ending Balance
 
14,033,660

 
14,033,660

Total CDOs - Ending Balance
 
667,268

 
667,268

Total Fee Earning AUM - Ending Balance
 
$
14,700,928

 
$
14,700,928


Explanatory Note:
_________________________________
(1)     Other includes changes in collateral balances of CLOs between periods and market value or portfolio value changes in certain Non-CLO products.

During the three months ended March 31, 2015, total AUM increased by $0.3 billion. During the first quarter, we issued one CLO and increased subscriptions to existing funds resulting in a $0.8 billion increase in Fee Earning AUM. New AUM was offset by declines in AUM for certain Legacy CLOs and CDOs aggregating $0.4 billion which have reached the end of their contractual reinvestment periods.

As of March 31, 2015, all of the CLOs and CDOs we manage and issued prior to 2011 have passed their reinvestment period whereby proceeds from paydown or sale of assets are required to repay the CLO or CDO's liabilities. As expected, AUM on these CLOs and CDOs continued to decline during the three months ended March 31, 2015. Further, we do not expect to sponsor new CDOs and expect CDO AUM to continue to decline going forward as these funds run-off per their contractual terms. Since 2014, we have replaced run-off from Legacy CLOs (including acquired CLOs) through organic growth from CLOs and Non-CLO products. Our Legacy CLO AUM of $4.6 billion is only a third of our total loan-based AUM of $14.0 billion.


29

The structure of the CLOs we manage affects the management fees paid to us. The following table summarizes select details of the structure of each of the CLOs we manage:
 
 
Issuance Date
 
March 31, 2015
Fee Earning AUM
 
First Optional
Call Date (1)
 
Termination of
Reinvestment
Period (2)
 
Maturity
Year (3)
 
 
Month/Year
 
(In thousands)
 
Month/Year
 
 
Post 2011 CLOs
 
 
 
 
 
 
 
 
 
 
CIFC Funding 2011-I, Ltd.
 
01/12
 
$
403,113

 
01/14
 
01/15
 
2023
CIFC Funding 2012-I, Ltd.
 
07/12
 
454,850

 
08/14
 
08/16
 
2024
CIFC Funding 2012-II, Ltd.
 
11/12
 
734,123

 
12/14
 
12/16
 
2024
CIFC Funding 2012-III, Ltd.
 
01/13
 
505,108

 
01/15
 
01/17
 
2025
CIFC Funding 2013-I, Ltd.
 
03/13
 
506,731

 
04/15
 
04/17
 
2025
CIFC Funding 2013-II, Ltd.
 
06/13
 
628,951

 
07/15
 
07/17
 
2025
   CIFC Funding 2013-III, Ltd.
 
09/13
 
404,217

 
10/15
 
10/17
 
2025
   CIFC Funding 2013-IV, Ltd.
 
11/13
 
504,570

 
11/15
 
11/17
 
2024
   CIFC Funding 2014, Ltd.
 
03/14
 
602,377

 
04/16
 
04/18
 
2025
CIFC Funding 2014-II, Ltd.
 
05/14
 
805,581

 
05/16
 
05/18
 
2026
CIFC Funding 2014-III, Ltd.
 
07/14
 
702,528

 
07/16
 
07/18
 
2026
CIFC Funding 2014-IV, Ltd.
 
09/14
 
601,783

 
10/16
 
10/18
 
2026
CIFC Funding 2014-V, Ltd.
 
12/14
 
551,677

 
10/16
 
01/19
 
2027
CIFC Funding 2015-I, Ltd.
 
03/15
 
599,970

 
09/16
 
04/19
 
2027
Total Post 2011 CLOs
 
 
 
8,005,579

 
 
 
 
 
 
Legacy CLOs
 
 
 
 
 
 
 
 
 
 
Navigator 2005 CLO, Ltd.
 
07/05
 
4,201

 
10/11
 
10/11
 
2017
Bridgeport CLO Ltd. 
 
06/06
 
324,859

 
10/09
 
07/13
 
2020
CIFC Funding 2006-I, Ltd. 
 
08/06
 
152,288

 
10/10
 
10/12
 
2020
Columbus Nova 2006-I, Ltd.
 
08/06
 
177,533

 
10/09
 
10/12
 
2018
Navigator 2006 CLO, Ltd.
 
09/06
 
105,076

 
09/10
 
09/13
 
2020
CIFC Funding 2006-I B, Ltd. 
 
10/06
 
139,855

 
12/10
 
12/12
 
2020
Burr Ridge CLO Plus Ltd. 
 
12/06
 
224,938

 
06/12
 
03/13
 
2023
CIFC Funding 2006-II, Ltd. 
 
12/06
 
270,026

 
03/11
 
03/13
 
2021
Columbus Nova 2006-II, Ltd.
 
12/06
 
205,949

 
02/10
 
02/13
 
2018
CIFC Funding 2007-I, Ltd. 
 
02/07
 
262,470

 
05/11
 
11/13
 
2021
CIFC Funding 2007-II, Ltd. 
 
03/07
 
461,195

 
04/11
 
04/14
 
2021
Columbus Nova 2007-I, Ltd.
 
03/07
 
220,596

 
05/10
 
05/13
 
2019
Hewett's Island CLO VI, Ltd. 
 
05/07
 
101,487

 
06/10
 
06/13
 
2019
Schiller Park CLO Ltd. 
 
05/07
 
340,296

 
07/11
 
04/13
 
2021
Bridgeport CLO II Ltd. 
 
06/07
 
471,182

 
12/10
 
09/14
 
2021
CIFC Funding 2007-III, Ltd. 
 
07/07
 
386,358

 
07/10
 
07/14
 
2021
Primus CLO II, Ltd. 
 
07/07
 
326,364

 
10/11
 
07/14
 
2021
Columbus Nova 2007-II, Ltd.
 
11/07
 
408,714

 
10/10
 
10/14
 
2021
Total Legacy CLOs
 
 
 
4,583,387

 
 
 
 
 
 
Total CLOs
 
 
 
$
12,588,966

 
 
 
 
 
 
Explanatory Notes:
_________________________________
(1)
CLOs are generally callable by equity holders (or the subordinated note holders of the CLO) once per quarter beginning on the "first optional call date" and subject to satisfaction of certain conditions. 
(2)
Termination of reinvestment period refers to the date after which we can no longer use certain principal collections to purchase additional collateral, and such collections are instead used to repay the outstanding amounts of certain debt securities issued by the CLO. 
(3)
Represents the contractual maturity of the CLO. Generally, the actual maturity of the deal is expected to occur before the contractual maturity. 


30

Results of Condensed Consolidated Operations
 
The Condensed Consolidated Financial Statements include the financial statements of our wholly owned subsidiaries, the entities in which we have a controlling interest ("Consolidated Funds") and variable interest entities ("VIEs" or "Consolidated VIEs") for which we are deemed to be the primary beneficiary (together the "Consolidated Entities"). Consolidated VIEs includes certain CLOs and warehouses we manage. The following table presents our comparative Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014:

 
For the Three Months Ended March 31,
 
2015 vs. 2014
 
2015
 
2014
 
Change
 
% Change
 
(In thousands, except share and per share amounts)
 
 
Revenues
 

 
 

 
 

 
 
Management fees and Incentive fees
$
1,535

 
$
1,612

 
$
(77
)
 
(5
)%
Net investment income
2,121

 
97

 
2,024

 
2,087
 %
Total net revenues
3,656

 
1,709

 
1,947

 
114
 %
Expenses
 

 
 

 
 

 
 
Employee compensation and benefits
10,102

 
7,340

 
2,762

 
38
 %
Professional services
1,926

 
1,046

 
880

 
84
 %
General and administrative expenses
2,439

 
2,213

 
226

 
10
 %
Depreciation and amortization
2,409

 
3,145

 
(736
)
 
(23
)%
Impairment of intangible assets
281

 
—

 
281

 
100
 %
Total expenses
17,157

 
13,744

 
3,413

 
25
 %
Other Income (Expense) and Gain (Loss)
 

 
 

 
 

 
 
Net gain (loss) on investments
234

 
1,406

 
(1,172
)
 
(83
)%
Net gain (loss) on contingent liabilities
(713
)
 
(229
)
 
(484
)
 
211
 %
Corporate interest expense
(494
)
 
(1,467
)
 
973

 
(66
)%
Net gain on the sale of management contract
—

 
228

 
(228
)
 
(100
)%
Net other income (expense) and gain (loss)
(973
)
 
(62
)
 
(911
)
 
1,469
 %
Operating income (loss)
(14,474
)
 
(12,097
)
 
(2,377
)
 
20
 %
 
 
 
 
 
 
 


Results of Consolidated Entities
 

 
 

 
 

 


Net results of Consolidated Entities
10,301

 
49,082

 
(38,781
)
 
(79
)%
 
 
 
 
 
 
 


Income (loss) before income taxes
(4,173
)
 
36,985

 
(41,158
)
 
(111
)%
Income tax (expense) benefit
(3,087
)
 
(12,404
)
 
9,317

 
(75
)%
Net income (loss)
(7,260
)
 
24,581

 
(31,841
)
 
(130
)%
Net (income) loss attributable to noncontrolling interest in Consolidated Entities
12,688

 
(24,346
)
 
37,034

 
(152
)%
Net income (loss) attributable to CIFC Corp.
$
5,428

 
$
235

 
$
5,193

 
2,210
 %
Earnings (loss) per share:
 

 
 

 
 

 
 
Basic
$
0.21

 
$
0.01

 
$
0.20

 
2,000
 %
Diluted
$
0.20

 
$
0.01

 
$
0.19

 
1,900
 %
Weighted-average number of shares outstanding:
 

 
 

 
 

 
 
Basic
25,279,226

 
20,839,236

 
4,439,990

 
21
 %
Diluted
26,572,616

 
21,937,897

 
4,634,719

 
21
 %
 
Net income (loss) attributable to CIFC Corp. was $5.4 million, or $0.20 per fully diluted share for the three months ended March 31, 2015, compared to $0.2 million, or $0.01 per fully diluted share, for the three months ended March 31, 2014. Net income (loss) attributable to CIFC Corp. increased by $5.2 million in 2015 from the prior year predominantly due to the following net results:
    

31

Total Net Revenues—GAAP net revenues include management fees from unconsolidated CLOs, CDOs and Non-CLO products and net interest income from investments in unconsolidated entities. Total net revenues increased $1.9 million or 114% in the first quarter of 2015 as compared to the same period prior year primarily due to increases in net investment income from unconsolidated fund(s).

Total Expenses—Total expenses increased by $3.4 million or 25% in 2015 primarily due to an increase in employee compensation and benefits and professional services. These increases were partially offset by decreases in depreciation and amortization of management contracts.
    
Employee compensation and benefits increased by $2.8 million or 38% due to (i) amortization of 2014 Restricted Stock Units ("RSU") grants to various employees, (ii) increase in headcount and employee compensation to support the growth of the business and (iii) improved benefits.

Professional services increased by $0.9 million or 84% mainly due to the first quarter professional fees to DFR Holdings in connection with the consulting agreement we entered into with DFR Holdings in the third quarter of 2014.

Depreciation and amortization decreased $0.7 million or 23% related to AUM run-off from acquired CLOs.
 
Net other income (expense) and gain (loss)—Total Net other (expense) and (loss) increased by $0.9 million in 2015 from the prior year, primarily due to (i) a $1.2 million decrease in net gain on investments from unconsolidated funds as compared to the same period in the prior year and (ii) a $0.5 million increased loss from contingent liabilities related to improvements in expected performance of legacy CIFC CLOs with fee sharing arrangements. These decreases in other income and gains were partially offset by decreased corporate interest expense of $0.9 million. In July 2014, we converted our Convertible Notes and reduced corporate interest expense.
    
Net results of Consolidated Entities attributable to CIFC Corp.—The table below represents our share in the net results of the Consolidated Entities and a reconciliation to the characteristics of these results:
 
 
For the Three Months Ended March 31,
 
2015 vs. 2014
 
 
2015
 
2014
 
Change
 
% Change
 
 
(In thousands)
 
 
 
 
Net results of Consolidated Entities
 
$
10,301

 
$
49,082

 
$
(38,781
)
 
(79
)%
Net (income) loss attributable to noncontrolling interest in Consolidated Entities
 
12,688

 
(24,346
)
 
37,034

 
(152
)%
   Net results of Consolidated Entities attributable to CIFC Corp.
 
$
22,989

 
$
24,736

 
$
(1,747
)
 
(7
)%
 
 
 
 
 
 
 
 
 
Characteristics of net results of Consolidated Entities attributable to CIFC Corp:
 
 
 
 
 
 
 
 
Consolidated Entities management fees and incentive fees
 
$
20,299

 
$
20,243

 
$
56

 
—
 %
Consolidated Entities net investment income
 
2,690

 
4,493

 
(1,803
)
 
(40
)%
 Net results of Consolidated Entities attributable to CIFC Corp.
 
$
22,989

 
$
24,736

 
$
(1,747
)
 
(7
)%

Net results of Consolidated Entities attributable to CIFC Corp. includes our portion of the Consolidated Entities' (including our Consolidated VIEs, or CLOs and warehouses) operating results. During the three months ended March 31, 2015 and 2014, we recognized $23.0 million and $24.7 million, respectively, of Consolidated Entities' management fees and incentive fees, and net investment interest income related to our investments in the Consolidated Entities.

The $1.7 million or 7% decrease in Net results of Consolidated Entities attributable to CIFC Corp. in the first quarter of 2015 as compared to the same period last year was mainly due to a $1.8 million decrease in Consolidated Entities' net investment income. The net investment income decrease was primarily driven by (i) $1.1 million of expense related to set-up of a new consolidated fund and (ii) decreases in the number of consolidated warehouses as compared to the same period last year.

Income tax expense/benefit—    The effective tax rate, including noncontrolling interests in Consolidated Entities, was (74.0)% and 33.5% for the three months ended March 31, 2015 and 2014, respectively.

Our effective tax rate on income excluding income/loss from non-controlling interests in Consolidated Entities was 36.3% and 47.7% for the three months ended March 31, 2015 and 2014, respectively. Effective tax rate for the three months ended March 31, 2014 does not include the impact of one time revaluation of the deferred tax assets that was recorded as the result of New York State law change.

32


Income taxes are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between carrying amounts of assets and liabilities and their respective tax basis, using tax rates in effect for the year in which differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

We analyze our tax filing positions in all of the US federal, state, and local jurisdictions where we are required to file income tax returns for all the years open to examination by the relevant taxing authorities. We recognize the benefit of tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that is more likely than not to be realized upon ultimate settlement with the relevant tax authority.

Subsequent to quarter end, new tax legislation was passed impacting how our income will be taxed in New York City. We expect the marginal tax rate paid by us will be reduced as a result of the legislation. We further expect the law change will result in revaluation of the deferred tax assets in the second quarter of 2015.

ENI and Deconsolidated Non-GAAP Statements (Non-GAAP Measures, unaudited)
 
ENI
    
ENI is a non-GAAP financial measure of profitability which management uses in addition to GAAP Net income attributable to CIFC Corp. to measure the performance of our core business (excluding non-core products). We believe ENI reflects the nature and substance of the business, the economic results driven by management fee and incentive fee revenues from the management of client funds and earnings on our investments. ENI represents net income (loss) attributable to CIFC Corp. excluding (i) income taxes, (ii) merger and acquisition related items including fee-sharing arrangements, amortization and impairments of intangible assets and gain (loss) on contingent consideration for earn-outs, (iii) non-cash compensation related to profits interests granted by CIFC Parent in June 2011, (iv) revenues attributable to non-core investment products, (v) write off of setup expenses for new funds that are consolidated and (vi) other non-recurring items.


33

ENI may not be comparable to similar measures presented by other companies, as they are non-GAAP financial measures that are not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. In addition, ENI should be considered an addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

The following table presents our components of ENI for the three months ended March 31, 2015 and 2014 (1):
 
 
For the Three Months Ended March 31,
 
2015 vs. 2014
 
2015
 
2014
 
Change
 
% Change
 
(in thousands)
 
 
Adjusted revenues
 
 
 
 
 
 
 
Senior Fees from CLOs
$
5,792

 
$
4,692

 
$
1,100

 
23
 %
Subordinated Fees from CLOs
9,169

 
8,469

 
700

 
8
 %
Management Fees from Non-CLO products
861

 
608

 
253

 
42
 %
Total management Fees
15,822

 
13,769

 
2,053

 
15
 %
Incentive Fees
4,000

 
5,200

 
(1,200
)
 
(23
)%
Net investment income
6,107

 
5,996

 
111

 
2
 %
Total adjusted net revenues
25,929

 
24,965

 
964

 
4
 %
 
 
 
 
 
 
 
 
Adjusted expenses
 
 
 
 
 

 
 
Employee compensation and benefits
9,818

 
6,828

 
2,990

 
44
 %
Professional services
1,851

 
1,046

 
805

 
77
 %
General and administrative expenses
2,325

 
2,213

 
112

 
5
 %
Depreciation and amortization
333

 
236

 
97

 
41
 %
Corporate interest expense
494

 
1,467

 
(973
)
 
(66
)%
Total adjusted expenses
14,821

 
11,790

 
3,031

 
26
 %
 
 
 
 
 
 
 
 
ENI
$
11,108

 
$
13,175

 
$
(2,067
)
 
(16
)%
Add: Corporate interest expense
494

 
1,467

 
(973
)
 
(66
)%
ENI EBIT
$
11,602

 
$
14,642

 
$
(3,040
)
 
(21
)%
Add: Depreciation of fixed assets
333

 
236

 
97

 
41
 %
ENI EBITDA
$
11,935

 
$
14,878

 
$
(2,943
)
 
(20
)%

Explanatory Note:
______________________________
(1)
Amounts in this table can be derived by taking the deconsolidated non-GAAP Statement of Operations and adjusting balances using the ENI reconciliation.

For the three months ended March 31, 2015 and 2014:

Adjusted revenues—Total management fees revenue increased by $2.1 million or 15% as our fee earning AUM from CLOs and Non-CLO products continued steady growth year over year. The increase was offset by a $1.2 million or 23% decrease in Incentive Fees due to (i) timing of CLOs being called and (ii) run-off in AUM of certain legacy CLOs. Net Investment Income remained relatively flat compared to the same period in the prior year.

Adjusted expenses—Total adjusted expenses increased by $3.0 million or 26% in the first quarter 2015 compared to the same period in 2014 primarily due to an increase in adjusted employee compensation and benefits costs and adjusted professional services. These costs increased to support the growth of the business. These increases were partially offset by decreases in adjusted corporate interest expense. CIFC converted its Convertible Notes in July 2014 and reduced its corporate interest expense.


34

The following is a reconciliation of GAAP Net income (loss) attributable to CIFC Corp. to ENI:
 
For the Three Months Ended March 31,
 
2015
 
2014
 
(in thousands)
GAAP Net income (loss) attributable to CIFC Corp.
$
5,428

 
$
235

Reconciling and non-recurring items:
 
 
 
Income tax expense (benefit)
3,087

 
12,404

Amortization and impairment of intangibles
2,357

 
2,909

Management fee sharing arrangements (1)
(1,839
)
 
(2,645
)
Net (gain)/loss on contingent liabilities and other
713

 
229

Employee compensation costs (2)
284

 
512

Management fees attributable to non-core funds
(173
)
 
(241
)
Fund setup expenses written off (3)
1,062

 
—

Other non-recurring (4)
189

 
(228
)
Total reconciling and non-recurring items
5,680

 
12,940

ENI
$
11,108

 
$
13,175

Add: Corporate interest expense
494

 
1,467

ENI EBIT
$
11,602

 
$
14,642

Add: Depreciation of fixed assets
333

 
236

ENI EBITDA
$
11,935

 
$
14,878


Explanatory Notes:
______________________________
(1)
We share management fees on certain of the acquired CLOs we manage (shared with the party that sold the funds to CIFC). Management fees are presented on a gross basis for GAAP and on a net basis for Non-GAAP ENI.
(2)
Compensation has been adjusted for non-cash compensation related to profits interests granted to CIFC employees by CIFC Parent and sharing of incentive fees with certain former employees established in connection with our acquisition of certain CLOs from Columbus Nova Credit Investments Management, LLC ("CNCIM").
(3)
Fund setup expenses are written-off upfront for GAAP purposes and are amortized over the life of the fund for Non-GAAP ENI.
(4)
For the three months ended March 31, 2015, other non-recurring represents litigation expenses and certain professional services. For the three months ended March 31, 2014, other non-recurring represents additional gains from contingent payments collected on the 2012 sale of our rights to manage Gillespie CLO PLC of $0.2 million.


35

Deconsolidated Non-GAAP Statements
The Deconsolidated Non-GAAP Statements represent the Condensed Consolidated GAAP statements adjusted to eliminate the impact of the Consolidated Entities. On the Condensed Consolidated Statement of Operations, we have reclassed the sum of Net results of Consolidated Entities, Net (income) loss attributable to noncontrolling interest in Consolidated Entities and Net gain (loss) on investments to the Deconsolidated Non-GAAP line items that represent its characteristics: management fees and incentive fees, and interest income. On the Balance Sheets, we have excluded amounts related to all consolidated entities. Management uses these Non-GAAP statements in addition to Condensed Consolidated GAAP Statements to measure the performance of our core asset management business.         
The following table presents the reconciliation from GAAP to Deconsolidated Non-GAAP Statement of Operations for the three months ended March 31, 2015 and 2014:

 
 
For the Three Months Ended March 31,
 
 
2015
 
2014
(In thousands)
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Management fees and Incentive fees
 
$
1,535

 
$
20,299

 
$
21,834

 
$
1,612

 
$
20,243

 
$
21,855

Net investment income
 
2,121

 
2,924

 
5,045

 
97

 
5,899

 
5,996

Total net revenues
 
3,656

 
23,223

 
26,879

 
1,709

 
26,142

 
27,851

Expenses
 
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
 
10,102

 
—

 
10,102

 
7,340

 
—

 
7,340

Professional services
 
1,926

 
—

 
1,926

 
1,046

 
—

 
1,046

General and administrative expenses
 
2,439

 
—

 
2,439

 
2,213

 
—

 
2,213

Depreciation and amortization
 
2,409

 
—

 
2,409

 
3,145

 
—

 
3,145

Impairment of intangible assets
 
281

 
—

 
281

 
—

 
—

 
—

Total expenses
 
17,157

 
—

 
17,157

 
13,744

 
—

 
13,744

Other Income (Expense) and Gain (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) on investments
 
234

 
(234
)
 
—

 
1,406

 
(1,406
)
 
—

Net gain (loss) on contingent liabilities
 
(713
)
 
—

 
(713
)
 
(229
)
 
—

 
(229
)
Corporate interest expense
 
(494
)
 
—

 
(494
)
 
(1,467
)
 
—

 
(1,467
)
Net gain on the sale of management contracts
 
—

 
—

 
—

 
228

 
—

 
228

Net other income (expense) and gain (loss)
 
(973
)
 
(234
)
 
(1,207
)
 
(62
)
 
(1,406
)
 
(1,468
)
Operating income (loss)
 
(14,474
)
 
22,989

 
8,515

 
(12,097
)
 
24,736

 
12,639

Net results of Consolidated Entities
 
10,301

 
(10,301
)
 
—

 
49,082

 
(49,082
)
 
—

Income (loss) before income taxes
 
(4,173
)
 
12,688

 
8,515

 
36,985

 
(24,346
)
 
12,639

Income tax (expense) benefit
 
(3,087
)
 
—

 
(3,087
)
 
(12,404
)
 
—

 
(12,404
)
Net income (loss)
 
(7,260
)
 
12,688

 
5,428

 
24,581

 
(24,346
)
 
235

Net (income) loss attributable to noncontrolling interest in Consolidated Entities
 
12,688

 
(12,688
)
 
—

 
(24,346
)
 
24,346

 
—

Net income (loss) attributable to CIFC Corp.
 
$
5,428

 
$
—

 
$
5,428

 
$
235

 
$
—

 
$
235



36

The following table presents the reconciliation from GAAP to Deconsolidated Non-GAAP Balance Sheets as of March 31, 2015 and December 31, 2014:

 
 
March 31, 2015
 
December 31, 2014
(In thousands)
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
41,461

 
$
—

 
$
41,461

 
$
59,290

 
$
—

 
$
59,290

Restricted cash and cash equivalents
 
1,694

 
—

 
1,694

 
1,694

 
—

 
1,694

Due from brokers
 
975

 
—

 
975

 
1

 
—

 
1

Investments
 
39,799

 
84,943

 
124,742

 
38,699

 
62,550

 
101,249

Receivables
 
1,657

 
4,755

 
6,412

 
2,134

 
4,346

 
6,480

Prepaid and other assets
 
5,096

 
—

 
5,096

 
4,115

 
—

 
4,115

Deferred tax asset, net
 
55,624

 
—

 
55,624

 
55,475

 
—

 
55,475

Equipment and improvements, net
 
5,264

 
—

 
5,264

 
5,194

 
—

 
5,194

Intangible assets, net
 
12,718

 
—

 
12,718

 
15,074

 
—

 
15,074

Goodwill
 
76,000

 
—

 
76,000

 
76,000

 
—

 
76,000

Subtotal
 
240,288

 
89,698

 
329,986

 
257,676

 
66,896

 
324,572

Total assets of Consolidated Entities
 
13,459,063

 
(13,459,063
)
 
—

 
12,890,459

 
(12,890,459
)
 
—

TOTAL ASSETS
 
$
13,699,351

 
$
(13,369,365
)
 
$
329,986

 
$
13,148,135

 
$
(12,823,563
)
 
$
324,572

LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
Due to brokers
 
$
6,245

 
$
—

 
$
6,245

 
$
—

 
$
—

 
$
—

Dividend payable
 
2,543

 
—

 
2,543

 
—

 
—

 
—

Accrued and other liabilities
 
8,626

 
—

 
8,626

 
15,584

 
—

 
15,584

Contingent liabilities
 
11,823

 
—

 
11,823

 
12,668

 
—

 
12,668

Long-term debt
 
120,000

 
—

 
120,000

 
120,000

 
—

 
120,000

Subtotal
 
149,237

 
—

 
149,237

 
148,252

 
—

 
148,252

Total non-recourse liabilities of Consolidated Entities
 
12,949,188

 
(12,949,188
)
 
—

 
12,477,981

 
(12,477,981
)
 
—

TOTAL LIABILITIES
 
13,098,425

 
(12,949,188
)
 
149,237

 
12,626,233

 
(12,477,981
)
 
148,252

EQUITY
 
 
 
 
 

 
 
 
 
 
 
Common stock
 
25

 
—

 
25

 
25

 
—

 
25

Treasury stock
 
(914
)
 
—

 
(914
)
 
(914
)
 
—

 
(914
)
Additional paid-in capital
 
990,448

 
—

 
990,448

 
988,904

 
—

 
988,904

Retained earnings (deficit)
 
(808,810
)
 
—

 
(808,810
)
 
(811,695
)
 
—

 
(811,695
)
TOTAL CIFC CORP. STOCKHOLDERS’ EQUITY
 
180,749

 
—

 
180,749

 
176,320

 
—

 
176,320

Noncontrolling interest in Consolidated Funds
 
303,962

 
(303,962
)
 
—

 
210,818

 
(210,818
)
 
—

Appropriated retained earnings (deficit) of Consolidated Entities
 
116,215

 
(116,215
)
 
—

 
134,764

 
(134,764
)
 
—

TOTAL EQUITY
 
600,926

 
(420,177
)
 
180,749

 
521,902

 
(345,582
)
 
176,320

TOTAL LIABILITIES AND EQUITY
 
$
13,699,351

 
$
(13,369,365
)
 
$
329,986

 
$
13,148,135

 
$
(12,823,563
)
 
$
324,572



37

Liquidity and Capital Resources
 
As of March 31, 2015, total GAAP cash and cash equivalents decreased by $17.8 million to $41.5 million from $59.3 million as of December 31, 2014. Net operating cash flows used for the three months ended March 31, 2015 was $0.4 billion, which was primarily driven by the Consolidated Entities' utilization of $1.9 billion of cash to purchase investments and the receipt of $1.3 billion in cash proceeds from the sale of investments. In addition, financing activities generated net cash proceeds of $0.3 billion which was primary driven by the Consolidated Entities receiving $0.6 billion of proceeds from issuance of long-term debt and utilizing $0.4 billion to repay long-term debt during the period.
During the three months ended March 31, 2015, total deconsolidated non-GAAP cash and cash equivalents decreased by $17.8 million to $41.5 million from $59.3 million as of December 31, 2014. For the three months ended March 31, 2015, de-consolidated non-GAAP cash flows provided by operating activities was $6.4 million. Our net investment in CIFC managed CLO equity, warehouses and funds were $22.2 million. We invested $0.4 million in various hardware and software projects. During the year, we paid down $1.6 million of contingent liabilities (related to fee sharing arrangements).
The table below is a reconciliation of selected cash flows data for the three months ended March 31, 2015 from GAAP to Non-GAAP:
 
For the Three Months Ended March 31, 2015
(In thousands)
GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
Cash and Cash Equivalents, Beginning
$
59,290

 
$
—

 
$
59,290

 
 
 
 
 
 
Net cash provided by/(used in) Operating Activities
(442,477
)
 
448,922

 
6,445

Net cash provided by/(used in) Investing Activities
123,255

 
(145,857
)
 
(22,602
)
Net cash provided by/(used in) Financing Activities
301,393

 
(303,065
)
 
(1,672
)
    Net change in Cash and Cash Equivalents
(17,829
)
 
—

 
(17,829
)
 
 
 
 
 
 
Cash and Cash Equivalents, End
$
41,461

 
$
—

 
$
41,461

    
During the three months ended March 31, 2015, our investments increased by $23.5 million. Our investments as of March 31, 2015 and December 31, 2014 are as follows ($ in thousands):
Non-GAAP (1)
 
March 31, 2015
 
December 31, 2014
 
Change
CIFC Managed CLO Equity (Residual Interests)
 
$
25,624

 
$
25,239

 
$
385

Warehouses (2)
 
25,438

 
21,134

 
4,304

Fund Coinvestments
 
47,167

 
43,336

 
3,831

Other Investments
 
26,513

 
11,540

 
14,973

Total
 
$
124,742

 
$
101,249

 
$
23,493


Explanatory Notes:
________________________________
(1)
Pursuant to GAAP, investments in consolidated CLOs, warehouses and certain Non-CLO products are eliminated from "Investments" on our Condensed Consolidated Balance Sheets.
(2)
From time to time, we establish “warehouses”, entities designed to accumulate investments in advance of sponsoring new CLOs or other funds managed by us.  To establish a warehouse, we contribute equity capital to a newly formed entity which is typically levered (three to five times) and begins accumulating investments.  When the related CLO or fund is sponsored, typically three to nine months later, the warehouse is “terminated”, with it concurrently repaying the related financing and returning to CIFC our equity contribution, net of gains and losses, if any.



38

Other Sources and Uses of Funds

Contingent Liabilities—In addition to the consideration paid in connection with the Merger, we were required to pay CIFC Parent a portion of incentive fees earned on six CLOs managed by CIFCAM (the "Legacy CIFC CLOs"). During the three months ended March 31, 2015 and 2014, we made total payments of $1.0 million and $2.0 million, respectively, related to these contingent liabilities.

In addition, we also assumed contingent liabilities during the merger that primarily represent contingent consideration related to Legacy CIFC’s acquisition of CypressTree in December 2010. During the three months ended March 31, 2015 and 2014, we made payments of $0.6 million and $0.2 million, respectively, related to these contingent liabilities.
    
Long-Term Debt—The following table summarizes our long-term debt:

 
March 31, 2015
 
December 31, 2014
 
Carrying
Value
 
Current
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
Carrying
Value
 
Current
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
(In thousands)
 
 
 
(In years)
 
(In thousands)
 
 
 
(In years)
Recourse debt:
 

 
 

 
 
 
 
 
 
 
 
March Junior Subordinated Notes (1)
$
95,000

 
1.00
%
 
20.6
 
$
95,000

 
1.00
%
 
20.8
October Junior Subordinated Notes (2)
25,000

 
3.75
%
 
20.6
 
25,000

 
3.73
%
 
20.8
Total Subordinated Notes Debt
$
120,000

 
1.57
%
 
20.6
 
$
120,000

 
1.57
%
 
20.8
 
 
 
 
 
 
 
 
 
 
 
 
Non-recourse Consolidated Entities' debt:
 

 
 

 
 
 
 
 
 
 
 
Consolidated CLOs (3)
$
12,403,268

 
1.84
%
 
8.7
 
$
11,998,034

 
1.77
%
 
8.7
Warehouses (4)
—

 
—
%
 
n/m
 
51,000

 
1.89
%
 
n/m
Total non-recourse Consolidated Entities' debt
$
12,403,268

 
1.84
%
 
8.7
 
$
12,049,034

 
1.77
%
 
8.7
Total long-term debt
$
12,523,268

 
 
 
 
 
$
12,169,034

 
 
 
 

Explanatory Notes:
________________________________
(1)
March Junior Subordinated Notes bear interest at an annual rate of 1% through April 30, 2015 and three month LIBOR plus 2.58% until maturity on October 30, 2035.
(2)
October Junior Subordinated Notes bear interest at an annual rate of three month LIBOR plus 3.50% and mature on October 30, 2035.
(3)
Long-term debt of the Consolidated CLOs is recorded at fair value. The subordinated notes of Consolidated CLOs do not have a stated interest rate. Therefore, they are excluded from the calculation of the weighted average borrowing rate. As of March 31, 2015 and December 31, 2014, the par value of the Consolidated CLOs long-term debt (including subordinated notes) was $13.0 billion and $12.9 billion, respectively.
(4)
Long-term debt of warehouses not held by CIFC is recorded at fair value. The fair value excludes the preferred shares of warehouses not held by CIFC. As warehouses are generally terminated before the end of their terms, they are excluded from the calculation of the weighted average remaining maturity.

Covenants—Junior Subordinated Notes—The Junior Subordinated Notes contain certain restrictive covenants including a restricted payments covenant that restricts our ability to pay dividends or make distributions in respect of our equity securities, subject to a number of exceptions and conditions.
Consolidated VIEs—Although we consolidate all the assets and liabilities of the Consolidated VIEs (includes the Consolidated CLOs, and warehouses), our maximum exposure to loss is limited to our investments and beneficial interests in the Consolidated VIEs and the receivables of management fees from the Consolidated VIEs. All of these items are eliminated upon consolidation. The assets of each of the Consolidated VIEs are administered by the trustee of each fund solely as collateral to satisfy the obligations of the Consolidated VIEs. If we were to liquidate, the assets of the Consolidated VIEs would not be available to our general creditors, and as a result, we do not consider them our assets. Additionally, the investors in the debt and residual interests of the Consolidated VIEs have no recourse to our general assets. Therefore, this debt is not our obligation.






39

Related Party Transactions

    DFR Holdings—As of each March 31, 2015 and December 31, 2014, DFR Holdings owned approximately 18.8 million of shares of our common stock. Accordingly, related party transactions included quarterly dividends (see "Item 1—Condensed Consolidated Financial Statements —Note 11). In addition, DFR Holdings held warrants that provide the holder the right to purchase 2.0 million shares of our voting common stock which are scheduled to expire on September 24, 2015.

In August 2014, we entered into a consulting agreement with DFR Holdings whereby DFR Holdings agreed to provide CIFC with ongoing advisory services such as the participation in financial, tax and strategic planning/budgeting, investor interface, new product initiatives, fund raising and recruiting. During the three months ended March 31, 2015, we paid $2.0 million to DFR Holdings in connection with the consulting agreement and expensed professional fees of $0.5 million.

In addition, pursuant to the Third Amended Restated Stockholders Agreement with DFR Holdings dated December 2, 2013, we agreed to nominate to our Board of Directors six directors designated by DFR Holdings (the "DFR Designees"). The number of directors that can be designated by DFR Holdings will be reduced in the event that DFR Holdings decreases its ownership (on a diluted basis) in CIFC. If DFR Holdings' ownership falls below 5%, it will lose the right to designate any director. During both the three months ended March 31, 2015 and 2014, the DFR Designees earned an aggregate $0.2 million related to their services.    
Other—As of March 31, 2015 and December 31, 2014, a board member held $1.0 million of income notes in one of our sponsored CLOs, CIFC Funding 2013-II, Ltd., through an entity in which he is a 50% equity holder.
Funds—As of both March 31, 2015 and December 31, 2014, key employees and directors of CIFC's board (including related entities) invested in four different funds, which we invest in and manage and held aggregate investments of $5.7 million and $4.7 million, respectively. Key employees are not charged a management fee on their investment. Directors were charged a management fee, similar to certain other investors. For the three months ended March 31, 2015 and 2014, these fees were de minimis.
Off-Balance Sheet Arrangements
As of March 31, 2015 and December 31, 2014, we did not maintain any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or VIEs, established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Further, as of March 31, 2015 and 2014, we did not guarantee any obligations of unconsolidated entities, enter into any commitments or express intent to provide additional funding to any such entities.
Subsequent Events
Subsequent to quarter end, we declared a cash dividend of $0.10 per share. The dividend will be paid on June 15, 2015 to shareholders of record as of the close of business on May 25, 2015.

Subsequent to quarter end, we priced a CLO that represented approximately $500 million of new loan-based AUM.    

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and judgments in certain circumstances that affect amounts reported as assets, liabilities, revenues and expenses. We have established detailed policies and control procedures intended to ensure that valuation methods, including any judgments made as part of such methods, are well controlled, reviewed and applied consistently from period to period. We base our estimates on corporate and industry experience and various other assumptions that we believe to be appropriate under the circumstances.    

A summary of our critical accounting estimates is included in our Annual Report on Form 10-K for the year ended December 31, 2014, in Management's Discussion and Analysis of Financial Condition. There have been no significant changes to our critical accounting estimates as of March 31, 2015.


40

Recent Accounting Updates
    
For a discussion of the impact of new accounting pronouncements on our financial condition or results of operations, see "Item 1—Condensed Consolidated Financial Statements—Note 3" of the Notes to the Condensed Consolidated Financial Statements.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, we are not required to provide the information required by Item 3.
Item 4.    Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, with the participation of our management, including our Principal Executive Officers and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. Based upon that evaluation, our Principal Executive Officers and our Chief Financial Officer concluded that our disclosure controls and procedures are effective.
Change in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting as of the end of the reporting period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
    

41

Inherent Limitations on Effectiveness of Controls
There are inherent limitations in the effectiveness of any control system, including the potential for human error and the circumvention or overriding of the controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, our management, including our Principal Executive Officers and our Chief Financial Officer do not expect that our control system can prevent or detect all errors or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity's operating environment or deterioration in the degree of compliance with policies or procedures.

42


PART II. Other Information

Item 1.    Legal Proceedings

None.

Item 1A.    Risk Factors
There have been no material changes in our risk factors from those disclosed in Part I—Item 1A. Risk Factors of our 2014 Form 10-K.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

No common shares were repurchased during the three months ended March 31, 2015.

The indentures governing our Junior Subordinated Notes contain limits on share repurchases, subject to a number of exceptions and conditions. The share repurchases allowed under the share repurchase program are within these limits.

Item 3. Defaults Upon Senior Securities

None.
Item 4.    Mine Safety Disclosures
None.
Item 5.    Other Information
None.

43

Item 6.    Exhibits

Ex. No.
 
Description of Exhibit
31.1
 
Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2
 
Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1
 
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 
 
101.0
 
Financial statements from the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2015, formatted in XBRL: (i) the Condensed Consolidated Balance Sheets (unaudited); (ii) the Condensed Consolidated Statements of Operations (unaudited); (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited); (iv) the Condensed Consolidated Statements of Equity (unaudited); (iv) the Condensed Consolidated Statements of Cash Flows (unaudited); and (v) the Notes to Condensed Consolidated Financial Statements (unaudited) furnished herewith.


Explanatory Notes:
_________________________________________________________________________
*
Filed herewith.
**
Furnished herewith.


44

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CIFC CORP.
 
 
(Registrant)
 
 
 
 
 
 
 
 
Date:
May 11, 2015
By:
/s/ STEPHEN J. VACCARO
 
 
Stephen J. Vaccaro, Co-President
 
 
(Principal Executive Officer)
 
 
 
 
Date:
May 11, 2015
By:
/s/ OLIVER E. WRIEDT
 
 
Oliver Wriedt, Co-President
 
 
(Principal Executive Officer)
 
 
 
 
Date:
May 11, 2015
By:
/s/ RAHUL N. AGARWAL
 
 
Rahul Agarwal, Chief Financial Officer
 
 
(Principal Financial and Accounting Officer)










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