Newcastle Investment Corp. (NYSE: NCT) (the “Company”) today announced that it has completed the sale of 100% of its interests in CDO X to the sole owner of the senior notes and another third party, in connection with the liquidation and termination of CDO X. The Company received $130 million for $89.75 million face amount of subordinated notes and all of its equity in CDO X. The sale and resulting deconsolidation of CDO X from the Company’s balance sheet will eliminate the impact of CDO X’s negative net book value and generate an approximately $200 million gain for the third quarter.
A condition to the sale of its interests was the right to purchase certain collateral held by CDO X. This collateral includes eight securities with a face amount of $101 million. The Company purchased the securities for 49.4% of par, or approximately $50 million. Following this purchase, the net proceeds of the sale were approximately $80 million.
Kenneth Riis, the Company’s CEO said: “We were able to structure a very positive transaction for the Company, which highlights our ability to actively manage our CDOs and extract value for our shareholders. This transaction allowed us to monetize the CDO, while retaining collateral at attractive returns. The Company’s future equity cash flows and principal recoveries from its interests in CDO X were subordinate to $1.12 billion face amount of senior notes and highly sensitive to the ultimate performance of the $1.30 billion of underlying collateral. By eliminating the uncertainty of our recovery, this transaction has enhanced the Company’s risk profile. We intend to invest the remaining proceeds using little or no leverage, with the goal of generating higher cash on cash returns than holding CDO X to maturity.”
CDO X is the second CDO liquidated by the Company over the past two years. The Company currently manages five other CDOs, and the underlying collateral has an aggregate face amount of approximately $2.42 billion as of June 30, 2012.