CIFC LLC - FORM 10-Q - May 9, 2016

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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, 2016
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: 1-37674

CIFC LLC
(Exact name of registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of incorporation or organization)
 
36-4814372
 (I.R.S. Employer Identification No.)


 
 
 
250 Park Avenue, 4th Floor, New York, New York
 (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

The number of Common Shares used for calculations in this Form 10-Q is based on 25,498,765 Common Shares, which are composed of 23,472,450 outstanding Common Shares as of April 29, 2016 and 2,026,315 Common Shares with respect to which an appraisal petition was filed with the Delaware Court of Chancery on April 28, 2016.
 

1

CIFC LLC

Index to Form 10-Q

 
 
Page
 
 



2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q (this "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 Annual Report on Form 10-K for the year ended December 31, 2015 (the "2015 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 LLC AND ITS SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)


 
March 31,
2016
 
December 31,
2015
 
(In thousands, except share
and per share amounts)
ASSETS
 
 
 
Cash and cash equivalents
$
52,011

 
$
57,968

Restricted cash and cash equivalents
1,694

 
1,694

Investments
77,347

 
70,696

Receivables
8,925

 
7,075

Prepaid and other assets
2,817

 
1,973

Deferred tax asset, net
43,110

 
44,425

Equipment and improvements, net
4,562

 
4,866

Intangible assets, net
5,393

 
6,857

Goodwill
76,000

 
76,000

Subtotal
271,859

 
271,554

Assets of Consolidated Entities:


 

Restricted cash and cash equivalents
80,592

 
94,018

Due from brokers
24,293

 
25,910

Investments
1,346,963

 
1,351,403

Receivables
4,185

 
4,109

Prepaid and other assets
187

 
209

Total assets of Consolidated Entities (1)
1,456,220

 
1,475,649

TOTAL ASSETS
$
1,728,079

 
$
1,747,203

LIABILITIES

 

Due to brokers
$
—

 
$
61

Distributions payable
8,670

 
—

Accrued and other liabilities
12,451

 
18,397

Contingent liabilities
8,142

 
8,338

Long-term debt
156,237

 
156,161

   Subtotal
185,500

 
182,957

Non-Recourse Liabilities of Consolidated Entities:

 

Due to brokers
49,350

 
71,603

Accrued and other liabilities
229

 
193

Interest payable
4,474

 
5,090

Long-term debt
1,312,058

 
1,308,558

Total Non-Recourse Liabilities of Consolidated Entities (1)
1,366,111

 
1,385,444

TOTAL LIABILITIES
1,551,611

 
1,568,401

EQUITY (Note 10)

 

Common shares, par value $0.001: 500,000,000 shares authorized, 25,574,061 issued and 25,498,765 outstanding as of March 31, 2016 and 25,314,756 issued and outstanding as of December 31, 2015
25

 
25

Treasury shares, at cost: 75,296 as of March 31, 2016
(435
)
 
—

Additional paid-in capital
994,766

 
992,419

Retained earnings (deficit)
(825,656
)
 
(821,491
)
TOTAL CIFC LLC SHAREHOLDERS’ EQUITY
168,700

 
170,953

Noncontrolling interests in Consolidated Funds (Note 2)
7,768

 
7,849

TOTAL EQUITY
176,468

 
178,802

TOTAL LIABILITIES AND EQUITY
$
1,728,079

 
$
1,747,203



4

CIFC LLC AND ITS SUBSIDIARIES
Condensed Consolidated Balance Sheets (continued)
(Unaudited)



    
Included in the Company's Condensed Consolidated Balance Sheets are balances from Consolidated Variable Interest Entities ("Consolidated VIEs") (1). See Notes 2 and 4.
 
March 31,
2016
 
December 31,
2015
 
(In thousands)
ASSETS
 
 
 
Assets of Consolidated VIEs:
 

 
 
Restricted cash and cash equivalents
$
80,592

 
$
94,018

Due from brokers
24,293

 
25,910

Investments
1,346,963

 
1,351,403

Receivables
4,185

 
4,109

Prepaid and other assets
187

 
209

Total assets of Consolidated VIEs
$
1,456,220

 
$
1,475,649

LIABILITIES
 
 
 
Non-Recourse Liabilities of Consolidated VIEs:
 

 
 

Due to brokers
$
49,350

 
$
71,603

Accrued and other liabilities
229

 
193

Interest payable
4,474

 
5,090

Long-term debt
1,312,058

 
1,308,558

Total Non-Recourse Liabilities of Consolidated VIEs
$
1,366,111

 
$
1,385,444

Explanatory Note: 
________________________________
(1)
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 LLC AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)


 
For the Three Months Ended March 31,
 
2016
 
2015
 
(In thousands, except share and per share amounts)
Revenues
 
 
 
Management and incentive fees
$
19,815

 
$
21,614

Interest income from investments
933

 
2,607

Interest income - Consolidated Entities
18,990


2,756

Total net revenues
39,738

 
26,977

 

 

Expenses

 

Employee compensation and benefits
9,514

 
8,564

Share-based compensation
2,381

 
1,680

Professional services
2,072

 
1,926

General and administrative expenses
2,517

 
2,297

Depreciation and amortization
1,296

 
2,409

Impairment of intangible assets
531

 
281

Corporate interest expense
1,957

 
494

Expenses - Consolidated Entities
388

 
1,268

Interest expense - Consolidated Entities
8,420

 
744

Total expenses
29,076

 
19,663

Other Gain (Loss)

 

Net gain (loss) on investments
271

 
1,193

Net gain (loss) on contingent liabilities
(364
)
 
(713
)
Net gain (loss) on investments - Consolidated Entities
2,600

 
2,797

Net gain (loss) on liabilities - Consolidated Entities
(7,384
)
 
(2,260
)
Net gain (loss) on other investments and derivatives - Consolidated Entities
—

 
438

Net other gain (loss)
(4,877
)
 
1,455

Income (loss) before income taxes
5,785


8,769

   Income tax (expense) benefit
(1,278
)

(3,087
)
Net income (loss)
4,507

 
5,682

Net (income) loss attributable to noncontrolling interests in Consolidated Entities
(2
)
 
(254
)
Net income (loss) attributable to CIFC LLC
$
4,505


$
5,428

 
 
 
 
Earnings (loss) per share (Note 11) —
 
 
 
Basic
$
0.18

 
$
0.21

Diluted
$
0.17

 
$
0.20

Weighted-average number of shares outstanding (Note 11)—
 
 
 
Basic
25,355,064

 
25,279,226

Diluted
25,809,402

 
26,572,416

 
 
 
 
Distributions declared per share
$
0.34

 
$
0.10


See notes to Condensed Consolidated Financial Statements.


6

CIFC LLC AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)



 
For the Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Net income (loss)
$
4,507

 
$
5,682

Other comprehensive income (loss)
—

 
—

Comprehensive income (loss)
4,507

 
5,682

Comprehensive (income) loss attributable to noncontrolling interests in Consolidated Entities
(2
)
 
(254
)
Comprehensive income (loss) attributable to CIFC LLC
$
4,505

 
$
5,428






   See notes to Condensed Consolidated Financial Statements.


7

CIFC LLC AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Equity
(Unaudited)
 
CIFC LLC Shareholders' Equity
 
Consolidated Entities (Note 2)
 
 
 
Shares
 
Treasury Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares Outstanding
 
Par
Value
 
Shares
 
Amount
 
Additional
paid-in
capital
Retained earnings (deficit)
 
Total CIFC LLC Shareholders' Equity
 
Noncontrolling Interests in Consolidated Funds
 
Appropriated
retained earnings
(deficit) of Consolidated
VIEs
 
Total Shareholders' Equity
 
(In thousands)
Balance—December 31, 2014
25,193

 
$
25

 
(130
)
 
$
(914
)
 
$
988,904

 
$
(811,695
)
 
$
176,320

 
$
210,818

 
$
134,764

 
$
521,902

Deconsolidation of CLOs and funds on adoption of ASU 2015-02
—

 
—

 
 
 
—

 
—

 
—

 
—

 
(204,393
)
 
(127,877
)
 
(332,270
)
Valuation of financial assets and liabilities of Consolidated CLOs on adoption of ASU 2014-13
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6,887
)
 
(6,887
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
5,428

 
5,428

 
254

 
—

 
5,682

Share-based compensation, net
83

 
—

 
—

 
—

 
1,415

 
—

 
1,415

 
—

 
—

 
1,415

Exercise of options
25

 
—

 
—

 
—

 
129

 
—

 
129

 
—

 
—

 
129

Contribution from noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
12,100

 
—

 
12,100

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(970
)
 
—

 
(970
)
Distributions declared
—

 
—

 
—

 
—

 
—

 
(2,543
)
 
(2,543
)
 
—

 
—

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

 
25

 
(130
)
 
(914
)
 
990,448

 
(808,810
)
 
180,749

 
17,809

 
—

 
198,558

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance—December 31, 2015
25,315

 
$
25

 
—

 
$
—

 
$
992,419

 
$
(821,491
)
 
$
170,953

 
$
7,849

 
$
—

 
$
178,802

Net income (loss)
—

 
—

 
—

 
—

 
—

 
4,505

 
4,505

 
2

 
—

 
4,507

Repurchases of common shares
—

 
—

 
75

 
(435
)
 
—

 
—

 
(435
)
 
—

 
—

 
(435
)
Share-based compensation, net
209

 
—

 
—

 
—

 
2,135

 
—

 
2,135

 
—

 
—

 
2,135

Exercise of options
50

 
—

 
—

 
—

 
212

 
—

 
212

 
—

 
—

 
212

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(83
)
 
—

 
(83
)
Distributions declared
—

 
—

 
—

 
—

 
—

 
(8,670
)
 
(8,670
)
 
—

 
—

 
(8,670
)
Balance—March 31, 2016
25,574

 
$
25

 
75

 
$
(435
)
 
$
994,766

 
$
(825,656
)
 
$
168,700

 
$
7,768

 
$
—

 
$
176,468

See notes to Condensed Consolidated Financial Statements.

8

CIFC LLC AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
For the Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net income (loss)
$
4,507

 
$
5,682

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

 
 

Amortization of debt issuance costs and other
76

 
22

Share-based compensation
2,381

 
1,680

Net (gain) loss on investments and contingent liabilities / other (gain) loss
93

 
(480
)
Depreciation and amortization
1,296

 
2,409

Impairment of intangible assets
531

 
281

Deferred income tax expense (benefit)
1,315

 
(150
)
Excess tax benefits from share-based payment arrangements
230

 
(8
)
Consolidated Entities:
 

 
 

Net (gain) loss on investments
(2,600
)
 
(2,797
)
Net (gain) loss on liabilities
7,384

 
2,260

Net other (gain) loss
—

 
(438
)
Changes in operating assets and liabilities:


 


Due from brokers
—

 
(974
)
Receivables
(1,850
)
 
461

Prepaid and other assets
(848
)
 
(1,003
)
Due to brokers
(61
)
 
6,245

Accrued and other liabilities
(5,461
)
 
(6,954
)
Consolidated Entities:
 

 
 

Due from brokers
1,616

 
10,348

Purchase of investments
(114,723
)
 
(143,714
)
Sales of investments
121,766

 
69,139

Receivables
(52
)
 
(438
)
Due to brokers
(22,253
)
 
48,068

Accrued and other liabilities
32

 
—

Interest payable
(616
)
 
10

Net cash provided by (used in) operating activities
(7,237
)
 
(10,351
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchases of investments
(16,134
)
 
(13,193
)
Sales of investments
9,712

 
35,301

Purchases of equipment and improvements
(61
)
 
(403
)
Consolidated Entities:
 

 
 

Change in restricted cash and cash equivalents
13,426

 
(54,873
)
Net cash provided by (used in) investing activities
6,943

 
(33,168
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repurchases of common shares
(435
)
 
—

Proceeds from the exercise of options
241

 
121

Payments for tax from the net delivery of restricted share units
(45
)
 
(265
)
Payments on contingent liabilities
(999
)
 
(1,559
)
Excess tax benefits from share-based payment arrangements

(230
)
 
8

Consolidated Entities:
 

 
 

Contributions from noncontrolling interests
—

 
12,100

Distributions to noncontrolling interests
(83
)
 
(970
)
Proceeds from issuance of long-term debt
3,830

 
84,100

Payments made on long-term debt
(7,942
)
 
(67,845
)
Net cash provided by (used in) financing activities
(5,663
)
 
25,690

Net increase (decrease) in cash and cash equivalents
(5,957
)
 
(17,829
)
Cash and cash equivalents at beginning of period
57,968

 
59,290

Cash and cash equivalents at end of period
$
52,011

 
$
41,461


9



CIFC LLC AND ITS SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)

 
For the Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
SUPPLEMENTAL DISCLOSURE:
 

 
 

Cash paid for interest
$
949

 
$
481

Cash paid for income taxes
$
2,182

 
$
1,500

Consolidated Entities:
 

 
 

Cash paid for interest
$
17,196

 
$
1,375

 
 
 
 
Non-cash disclosures:
 
 
 
Exercise of share options and RSUs
$
36

 
$
32

Consolidated Entities:
 

 
 

Deconsolidation of net assets
$
—

 
$
22,578

Non-cash settlement of interest receivables with increases in principal
$
15

 
$
26




See notes to Condensed Consolidated Financial Statements.


10
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 1—Organization and Business
Organization— CIFC LLC (together with its subsidiaries, "CIFC" or the "Company") is a Delaware limited liability company headquartered in New York City. The Company is a private debt manager specializing in secured U.S. corporate loan strategies. The Company's primary business is to provide investment management services for institutional investors, including pension funds, hedge funds, asset management firms, banks, insurance companies and other types of institutional investors around the world.
Fee Earning Assets Under Management (“Fee Earning AUM” or “AUM”) refers to the principal balance, net asset value or value of assets managed by the Company on which the Company earns management and/or incentive fees. The Company's AUM is primarily comprised of Collateralized Loan Obligations ("CLOs"). In addition, the Company manages credit funds and other loan-based products (together, "Non-CLO products" and together with CLOs, "Funds"). The Company manages these credit products through opportunistic investment strategies where the Company seeks to generate current income and/or capital appreciation, primarily through senior secured corporate loan investments (“SSCLs”) and, to a lesser extent, other investments. The Company also manages Collateralized Debt Obligations (“CDOs”), which it does not expect to issue in the future.
 
The Company has three primary sources of revenue: management fees, incentive fees and investment income. Management fees are generally based on a percentage of AUM of the Funds. Incentive fees are earned based on the performance of the Funds. Investment income represents interest income and realized/unrealized gains and losses on investments in the products sponsored by the Company and third parties.

On December 31, 2015, CIFC Corp., the formerly publicly traded entity, completed a series of transactions (the "Reorganization Transaction") to become a subsidiary of CIFC LLC. The series of transactions changed the Company's top-level form of organization from a corporation to a limited liability company. As of January 1, 2016, the Company was taxed as a partnership. The Reorganization Transaction was a transaction between entities under common control; therefore, the prior year comparative Condensed Consolidated Financial Statements include the Consolidated Balance Sheet, Statement of Operations, Comprehensive Income (Loss), Equity and Cash Flows as of and for the three months ended March 31, 2015 of CIFC Corp.

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 accompanying unaudited Condensed Consolidated Financial Statements and related Notes should be read in conjunction with the Consolidated Financial Statements and related Notes included in the 2015 Annual Report.

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.

Certain prior year amounts in the Condensed Consolidated Financial Statements and the related notes have been reclassified to conform to current period presentation. During late 2015, we adopted certain Accounting Standard Updates ("ASU") issued by the Financial Accounting Standards Board (FASB) such as the deconsolidation of certain CLOs and Funds (or ASU 2015-02) and the valuation of financial assets and liabilities of Consolidated CLOs (or ASU 2014-13) which were applied on a modified retroactive basis. As such, the Condensed Consolidated Financial Statements and the related notes for the three months ended March 31, 2015 have been re-presented to reflect the impact of these adoptions (see the 2015 Annual Report). Further, other reclassified items include a detailed break out of line items for net results of Consolidated Entities, Employee compensation and benefits, Share-based compensation, and General and administrative expenses on the Condensed Consolidated Statements of Operations as well as Contributions from and Distributions to noncontrolling interests on the Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Equity.


11
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 VIEs for which the Company is deemed to be the primary beneficiary (together with Consolidated Funds, 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 of both March 31, 2016 and December 31, 2015, the Company held $81.8 million of investments in its Consolidated Entities.
                 
Consolidated VOEs—The Company consolidates entities in which it has a controlling voting interest. As of March 31, 2016 and December 31, 2015, the Company did not consolidate any entities under the voting interest model.

Consolidated VIEs—The Company also consolidates variable interest entities in which it is deemed the primary beneficiary. These Consolidated VIEs generally include certain CLOs (collectively, the "Consolidated CLOs"), warehouses, loan investment products, and other similar legal entities.
    
Tactical Income Fund—The Company invests in and manages an open-end credit fund that invests primarily in second-lien loans (the "Tactical Income Fund"). The Company consolidated the Tactical Income Fund. Under the consolidation rules, limited partnerships where investors lack the right to remove the general partners are deemed VIEs. The Company is deemed the primary beneficiary as it cannot be removed as the investment manager and has a significant financial interest in the fund. As of March 31, 2016 and December 31, 2015, the Company held an investment of $33.6 million and $33.2 million, respectively, and for both periods the limited partners held $7.8 million. Limited partners' interests were reported in "Noncontrolling interests in Consolidated Funds" on the Condensed Consolidated Balance Sheet.

Consolidated CLOs and Other—As of March 31, 2016 and December 31, 2015, the Company consolidated 2 CLOs and 2 credit funds (including Tactical Income Fund).

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 may 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. Since the launch of the Warehouse Fund (see below), the Company's direct investments in warehouses it manages have been limited.

As of both March 31, 2016 and December 31, 2015, the Company did not consolidate any warehouses but held variable interests in 3 warehouses for which it was not deemed to be the primary beneficiary.

Unconsolidated VOEs—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, 2016 and December 31, 2015, the carrying value of the Company's investment, as the general partner of the fund, was $14.7 million and $13.9 million, respectively.

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, 2016 and December 31, 2015, the carrying value of the Company's investment, as the general partner of the fund, was $11.8 million and $12.1 million, respectively.

The limited partners of both the Warehouse Fund and the Co-Investment Fund may remove the general partner's presumption of control, and as such, the Company did not consolidate these funds. The Company's investments in these funds were recorded in "Investments" on the Company's Condensed Consolidated Balance Sheets.

Unconsolidated VIEs—Senior Secured Corporate Loan Fund—The Company invests in and manages an open-end credit fund that invests in performing U.S. SSCLs (the "Senior Secured Corporate Loan Fund") to provide capital appreciation and risk-adjusted returns to its investors. The Company does not consolidate the Senior Secured Corporate Loan Fund. Under the

12
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

consolidation rules, limited partnerships where investors lack the right to remove the general partners, are deemed VIEs, however, the Company is not deemed the primary beneficiary as it does not have a significant financial interest in the fund. As of March 31, 2016 and December 31, 2015, the carrying value of the Company's investment was $5.5 million and $5.4 million, respectively.
    
As of March 31, 2016, the Company had variable interests in 26 CLOs, 8 CDOs, and 2 Non-CLO products (including the Senior Secured Corporate Loan Fund), 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, 2015, the Company's unconsolidated VIEs included 28 CLOs, 8 CDOs and 2 Non-CLO products (including the Senior Secured Corporate Loan Fund).

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, 2016 and December 31, 2015 the Company invested $39.5 million and $29.0 million, respectively, in Unconsolidated VIEs and the Company's management fee receivables were $4.5 million and $4.1 million, respectively.

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

As of March 31, 2016, the Company's significant accounting policies, which are detailed in the 2015 Annual Report have not changed.

Recent Accounting Updates

In March 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718) ("ASU 2016-09"), which is intended to simplify several aspects of the accounting for share-based payment award transactions. Specifically, ASU 2016-09 aims to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within that year. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) ("ASU 2016-02"), to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently evaluating the impact of this ASU on its Consolidated Financial Statements.
    
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date ("ASU 2015-14"). The ASU amends the effective date of ASU 2014-09 for all entities by one year. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) ("ASU 2014-09"), 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. With the issuance of ASU 2015-14 the new effective date for the Company is January 1, 2018. 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.
    
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"). 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 does not believe this guidance will have a material impact on its Consolidated Financial Statements.


13
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 4—Consolidated VIEs

Although the Company consolidates all the assets and liabilities of the Consolidated VIEs (including the Consolidated CLOs, warehouses and other investment products), 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.

The following table summarizes the Company's total maximum exposure to loss on these Consolidated VIEs, as follows (1):
 
 
March 31, 2016
 
December 31, 2015
 
 
(In thousands)
Maximum exposure to loss:
 
 
 
 
     Investments and beneficial interests (2)
 
$
81,944

 
$
81,752

     Receivables
 
394

 
605

Total maximum exposure to loss
 
$
82,338

 
$
82,357


Explanatory Notes: 
________________________________
(1)
In addition, exposure to loss includes future management fees on the Consolidated VIEs, which are not included in the table.
(2)
Investments made in our Consolidated VIEs are eliminated in consolidation.

Note 5—Fair Value
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair Value Hierarchy—The following table summarizes the assets and liabilities carried at fair value on a recurring basis, by class and level: 
 
March 31, 2016
 
December 31, 2015
 
Level 1
 
Level 2
 
Level 3
 
NAV
 
Estimated 
Fair Value
 
Level 1
 
Level 2
 
Level 3
 
NAV
 
Estimated Fair Value
 
(In thousands)
 
(In thousands)
Assets
 

 
 

 
 

 
 
 
 

 
 

 
 

 
 

 
 
 
 

Investments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit Funds
$
—

 
$
—

 
$
—

 
$
31,977

 
$
31,977

 
$
—

 
$
—

 
$
—

 
$
31,411

 
$
31,411

Structured products & other
—

 
1,558

 
43,812

 
—

 
45,370

 
—

 
1,768

 
37,517

 
—

 
39,285

Subtotal
—

 
1,558

 
43,812

 
31,977

 
77,347

 
—

 
1,768

 
37,517

 
31,411

 
70,696

Consolidated Entities:
 

 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
Loans (1)
—

 
1,052,484

 
292,559

 
—

 
1,345,043

 
—

 
1,067,539

 
281,868

 
—

 
1,349,407

Structured products & other
—

 
802

 
1,118

 
—

 
1,920

 
—

 
840

 
1,156

 
—

 
1,996

Total Consolidated Entities
—

 
1,053,286

 
293,677

 
—

 
1,346,963

 
—

 
1,068,379

 
283,024

 
—

 
1,351,403

Total Assets
$
—

 
$
1,054,844

 
$
337,489

 
$
31,977

 
$
1,424,310

 
$
—


$
1,070,147

 
$
320,541

 
$
31,411

 
$
1,422,099

Liabilities
 

 
 

 
 

 
 
 
 

 
 
 
 
 
 
 
 
 
 
Contingent liabilities
$
—

 
$
—

 
$
8,142

 
$
—

 
$
8,142

 
$
—

 
$
—

 
$
8,338

 
$
—

 
$
8,338

Total Liabilities
$
—

 
$
—

 
$
8,142

 
$
—

 
$
8,142

 
$
—

 
$
—

 
$
8,338

 
$
—

 
$
8,338


Explanatory Note:
______________________________
(1)
As of both March 31, 2016 and December 31, 2015, the total aggregate unpaid principal balance of loans was $1.4 billion .See Note 9 for total contractual principal amounts.


14
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 Consolidated Statements of Operations. 
 
Level 3 Financial Assets
 
For the Three Months Ended March 31, 2016
 
Investments
 
Investment Assets of Consolidated Entities
 
Structured Products & Other
 
Total
 
Loans
 
Structured Products & Other
 
Total
 
(In thousands)
Estimated fair value, beginning of period
$
37,517

 
$
37,517

 
$
281,868

 
$
1,156

 
$
283,024

Transfers into Level 3 (1)
—

 
—

 
95,421

 
—

 
95,421

Transfers out of Level 3 (2)
—

 
—

 
(84,551
)
 
—

 
(84,551
)
Net realized/unrealized gains (losses) (3)
(1,307
)
 
(1,307
)
 
(933
)
 
(38
)
 
(971
)
Purchases (3)
15,721

 
15,721

 
24,480

 
—

 
24,480

Sales (3)
(8,000
)
 
(8,000
)
 
(9,899
)
 
—

 
(9,899
)
Settlements (3)
(119
)
 
(119
)
 
(13,827
)
 
—

 
(13,827
)
Estimated fair value, end of period
$
43,812

 
$
43,812

 
$
292,559

 
$
1,118

 
$
293,677

Change in unrealized gains (losses) for the period for the assets held as of the end of the period
$
(213
)
 
$
(213
)
 
$
(1,967
)
 
$
(38
)
 
$
(2,005
)

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

 
$
7,604

 
$
8,571

 
$
2,517,887

 
$
478

 
$
69,973

 
$
2,588,338

Transfers into Level 3 (1)
—

 
—

 
—

 
2,327

 
—

 
—

 
2,327

Transfers out of Level 3 (2) (3)
—

 
—

 
—

 
(8,477
)
 
—

 
—

 
(8,477
)
Transfers in (out) due to deconsolidation (2)(3)
—

 
23,614

 
23,614

 
(2,476,625
)
 
(478
)
 
(67,383
)
 
(2,544,486
)
Net realized/unrealized gains (losses) (3)
—

 
(197
)
 
(197
)
 
497

 
—

 
(101
)
 
396

Purchases (3)
—

 
7,138

 
7,138

 
26,643

 
—

 
2,188

 
28,831

Sales (3)
—

 
(5,296
)
 
(5,296
)
 
(11,336
)
 
—

 
—

 
(11,336
)
Settlements (3)
—

 
—

 
—

 
(5,933
)
 
—

 
—

 
(5,933
)
Estimated fair value, end of period
$
967

 
$
32,863

 
$
33,830

 
$
44,983

 
$
—

 
$
4,677

 
$
49,660

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

 
$
3

 
$
3

 
$
82

 
$
—

 
$
(101
)
 
$
(19
)

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.
(3)
The adoption of ASU 2015-02 was applied on a modified retrospective basis. Transfers out, net realized/unrealized gains (losses), purchases, sales and settlements for the three months ended March 31, 2015 reflect the deconsolidation of CLOs as of January 1, 2015.

15
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 
Level 3 Financial Liabilities
 
For the Three Months Ended March 31, 2016
 
For the Three Months Ended March 31, 2015
 
Contingent Liabilities
 
Total
 
Contingent Liabilities
 
Long-term Debt of Consolidated Entities
 
Total
 
(In thousands)
Estimated fair value, beginning of period
$
8,338

 
$
8,338

 
$
12,668

 
$
12,049,034

 
$
12,061,702

Transfer in due to consolidation (2)(3)
—

 
—

 
—

 
(12,049,034
)
 
(12,049,034
)
Net realized/unrealized (gains) losses (2)
364

 
364

 
713

 
—

 
713

Settlements (2)(4)
(560
)
 
(560
)
 
(1,558
)
 
—

 
(1,558
)
Estimated fair value, end of period
$
8,142

 
$
8,142

 
$
11,823

 
$
—

 
$
11,823

Change in unrealized gains (losses) for the period for the liabilities outstanding as of the end of the period
$
364

 
$
364

 
$
713

 
$
—

 
$
713


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)
The adoption of ASU 2015-02 was applied on a modified retrospective basis. Transfers out, net realized/unrealized gains (losses), purchases, sales and settlements for the three months ended March 31, 2015 reflect the deconsolidation of CLOs as of January 1, 2015.
(3)
Pursuant to the adoption of ASU 2014-13, the Long-term Debt of Consolidated Entities have been remeasured in accordance with the new guidance.
(4)
For Contingent Liabilities, amount represents payments made and due related to the contingent liabilities from the merger with Legacy CIFC (Note 8).

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.     
    
Credit Funds—Amounts include the Company's investment in unconsolidated credit funds where the Company co-invests with third-party investors. The fair value of investments in credit funds are generally determined based on the Company's proportionate share of the net asset value ("NAV") of the fund. Investors in the Company’s open-ended credit funds may redeem their interests, at any time, within 30 days after notice. Investors in the Company’s closed-end credit funds generally cannot redeem. The Company estimates that closed-end funds are expected to liquidate over 2 to 5 years. The Company has no unfunded commitments in its open-ended and closed-end credit funds. The Company's investments in credit funds have been excluded from the fair value hierarchy table.

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 two 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.
 
Structured Products & Other—Structured Products and Other primarily represents the fair value of investments in CIFC and third-party managed CLOs and warehouses. These assets 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

16
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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 are (i) equity securities not listed for trading on a national exchange ("Non-listed Equity Securities") received on certain loan restructurings within our portfolio and (ii) on occasion, warehouse total return swaps ("TRS," Note 6). Similar to the fair value of loans, Non-listed Equity Securities are valued using a third-party pricing service. When the fair value of a Non-listed Equity Security is determined using two or more quotes, it is classified as Level 2 within the fair value hierarchy, and when the fair value is determined using less than two quotes, it is classified as Level 3 within the fair value hierarchy. The fair value of a warehouse TRS is calculated as the sum of (i) the change in fair value of the reference obligations (SSCLs 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 values are 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 include 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 and warehouses. Financial liabilities are measured as: (1) the sum of the fair value of the financial assets and the carrying value of any non-financial assets that are incidental to the operations of the CLOs less (2) the sum of the fair value of any beneficial interests retained by the reporting entity (other than those that represent compensation for services) and the Company’s carrying value of any beneficial interests that represent compensation for services.

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, 2016
 
 
 
March 31, 2016
 
December 31, 2015
 
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
$
8,142

Discounted cash flows
Discount rate (2)
 
8.1%-13.0%
 
6.7%-12.0%
 
Decrease
 
 
 
Default rate (3)
 
2.0%
 
2.0%
 
Decrease
 
 
 
Recovery rate (3)
 
70%
 
70%
 
Increase
 
 
 
Pre-payment rate (3)
 
25%
 
40%
 
Decrease
 
 
 
Reinvestment spread of assets above LIBOR
 
3.3%-4.0%
 
3.0-3.8%
 
Increase
 
 
 
Reinvestment price of assets
 
100.0
 
100.0
 
Increase


17
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

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, 2016
 
 
As of December 31, 2015
 
Carrying
Value
 
Estimated
Fair
Value
 
 
Carrying
Value
 
Estimated
Fair
Value
 
(In thousands)
Financial liabilities:
 

 
 

 
 
 

 
 

Long-term debt:
 

 
 

 
 
 

 
 

Junior Subordinated Notes (1)
$
118,282

 
$
52,549

 
 
$
118,259

 
$
57,371

Senior Notes (2)
$
37,955

 
$
40,000

 
 
$
37,902

 
$
40,000


Explanatory Note:
________________________________
(1)
The Junior Subordinated Notes include both the March and October Junior Subordinated Notes (Note 9). 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.
(2)
On November 2, 2015, the Company issued $40.0 million par value of Senior Notes which are publicly registered and fair valued using the issuance price.

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, receivables and due to brokers. In addition, amounts in the Consolidated Entities related to, restricted cash and cash equivalents, due from brokers, receivables and due to brokers also approximate the fair value of the instruments and are all considered Level 1 in the fair value hierarchy.

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

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
Note 6—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 agreement, 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 consolidated this warehouse SPV as it was a VIE in which the Company was deemed the primary beneficiary (Note 2). During the year ended December 31, 2015 the warehouse agreement was terminated in conjunction with the issuance of a CLO.

During the three months ended March 31, 2016, the Company recognized $(0.3) million net (loss) related to other derivative instruments and during the three months ended March 31, 2015, the Company recognized net income of $0.4 million related to the TRS agreement.


18
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 7—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, 2016:
 
 
 

 
 

 
 

Investment management contracts
2.1
 
$
40,405

 
$
37,527

 
$
2,878

Referral arrangement
3.5
 
3,810

 
2,286

 
1,524

Non-compete agreements
2.0
 
1,284

 
917

 
367

Trade name
5.0
 
1,250

 
626

 
624

Total intangible assets
 
 
$
46,749

 
$
41,356

 
$
5,393

December 31, 2015:
 
 
 

 
 

 
 

Investment management contracts
2.4
 
$
71,113

 
$
67,040

 
$
4,073

Referral arrangement
3.8
 
3,810

 
2,096

 
1,714

Non-compete agreements
2.2
 
1,535

 
1,122

 
413

Trade name
5.2
 
1,250

 
593

 
657

Total intangible assets
 
 
$
77,708

 
$
70,851

 
$
6,857


Explanatory Notes:
_________________________________
(1)
Gross carrying amounts as of March 31, 2016 have been reduced to reflect fully impaired and amortized assets.
(2)
During the three months ended March 31, 2016 and 2015, the Company recorded amortization expense on its intangible assets of $0.9 million and $2.1 million, respectively.

The following table presents expected amortization expense of the existing intangible assets:
 
(In thousands)
2016 (nine months remaining)
$
1,651

2017
1,726

2018
1,449

2019
411

2020
125

Thereafter
31

 
$
5,393


During the three months ended March 31, 2016 and 2015, the Company received notice from holders of certain CLOs exercising their right to call the CLOs for redemption. As a result of these calls, the Company recorded impairment charges of $0.5 million and $0.3 million, respectively, to fully impair intangible assets associated with these management contracts.


19

Note 8—Contingent Liabilities
 
Contingent Liabilities—In addition to the consideration paid in connection with the merger with Commercial Industrial Finance Corp. ("Legacy CIFC") (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 CIFC Asset Management LLC (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 both the three months ended March 31, 2016 and 2015, the Company made total payments of $1.0 million related to these contingent liabilities. As of March 31, 2016, there are no remaining payments under item (i) and the Company made cumulative payments of $16.6 million under (ii) to date.
 
In addition, the Company also assumed contingent liabilities during the Merger that primarily represent contingent consideration related to Legacy CIFC’s acquisition of CypressTree Investment Management, LLC ("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. As of March 31, 2016, there were no payments due. During the three months ended March 31, 2015, the Company made payments of $0.6 million, related to these contingent liabilities.
        
Note 9—Long-Term Debt
 
The following table summarizes the long-term debt:
 
 
March 31, 2016
 
December 31, 2015
 
 
Par
 
Carrying
Value
 
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
Par
 
Carrying
Value
 

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

 
$
93,476

 
3.20
%
 
19.6
 
$
95,000

 
$
93,456

 
2.90
%
 
19.8
October Junior Subordinated Notes (2)
 
25,000

 
24,806

 
4.12
%
 
19.6
 
25,000

 
24,803

 
3.82
%
 
19.8
Senior Notes (3)
 
40,000

 
37,955

 
8.50
%
 
9.6
 
40,000

 
37,902

 
8.50
%
 
9.8
Total Recourse Debt
 
$
160,000

 
$
156,237

 
4.67
%
 
17.1
 
$
160,000

 
$
156,161

 
4.44
%
 
17.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Recourse Consolidated Entities' debt:
 
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
Consolidated CLOs and Other (4)
 
$
1,360,725

 
$
1,312,058

 
0.03
%
 
9.0
 
$
1,385,226

 
$
1,308,558

 
0.02
%
 
9.1
     Total Non-recourse Debt
 
$
1,360,725

 
$
1,312,058

 
0.03
%
 
9.0
 
$
1,385,226

 
$
1,308,558

 
0.02
%
 
9.1
 
Explanatory Notes:
_______________________________
(1)
March Junior Subordinated Notes bear interest at an annual rate of three month LIBOR plus 2.58% until maturity on October 30, 2035. Prior to April 30, 2015, these notes bore interest at an annual rate of 1%.
(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)
The Senior Notes bear interest at 8.5% and mature on October 30, 2025. As of January 1, 2016, the Company temporarily did not meet certain registration requirements under the indenture (and associated agreements) and incurred additional interest of 25 basis points per annum for the period ended March 31, 2016. Each 90 days thereafter interest will increase by 25 basis points (capped at 1% per annum) until cured. The Company has cured these conditions and expects the additional interest to end in July 2016.
(4)
The subordinated notes of the Consolidated CLOs do not have a stated interest rate and have been excluded from the calculation of the weighted average borrowing rate. As of March 31, 2016 and December 31, 2015, long-term debt of the Consolidated CLOs and Other includes $151.7 million and $153.1 million of credit fund debt, respectively.

Non-Recourse Consolidated Entities' Debt—The debt and equity holders only have recourse to the total assets of the respective Consolidated Entity's assets.

20
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Consolidated Entities— As of March 31, 2016, the Company consolidated 2 CLOs and 2 credit funds (Note 2). During the three months ended March 31, 2016, the Consolidated Entities distributed $4.9 million to the holders of their subordinated notes. During the three months ended March 31, 2015, the Consolidated Entities paid down $16.1 million of their outstanding debt, made net borrowings under revolving credit facilities of $33.1 million, and distributed $0.7 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 $1.2 billion as of both March 31, 2016 and December 31, 2015, respectively.
Note 10—Equity

Common Shares—During the three months ended March 31, 2016 and 2015, the Company declared aggregate distributions of $0.34 and $0.10 per common share, respectively. Subsequent to quarter end, the Company's board of directors declared a cash distribution of $0.25 per share, composed of a $0.10 per share quarterly distribution and a $0.15 per share special distribution. The distribution will be paid on May 24, 2016 to shareholders of record as of the close of business on May 17, 2016 (Note 16).
In connection with the Reorganization Transaction, two holders of record (the “Dissenting Shareholders”) with approximately 2.0 million shares of common stock of CIFC Corp. in aggregate (“Dissenting Shares”) reserved their right to seek appraisal of their shares (Note 16). Distributions payable to the Dissenting Shareholder will be withheld by the Company.
Treasury Share/Share Repurchases—During the three months ended March 31, 2016, the Company repurchased 75,296 common shares in open-market transactions for an aggregate cost (including transaction costs) of $0.4 million with an average price per share of $5.75. There were no repurchases made during the three months ended March 31, 2015. As of March 31, 2016, the Company was authorized to repurchase up to $3.8 million of its common shares under the share repurchase program.

Share-based Compensation— As of March 31, 2016, there was $14.8 million of estimated unrecognized compensation expense related to unvested share options and RSU awards, net of estimated forfeitures. The remaining weighted average vesting periods of share options and RSUs are 0.28 years and 2.79 years, respectively.

Share Options—The following table summarizes certain share options activity:
 
Number of Shares
Underlying Share Options
 
Weighted Average
Exercise Price
 
Weighted Average
Remaining
Contractual Term
 
Aggregate Intrinsic
Value
 
 
 
 
 
(In years)
 
(In thousands)
Outstanding at December 31, 2015
3,285,313


$
6.69

 
4.64
 
$
788

Exercised (1)
(50,000
)
 
$
4.83

 

 


Outstanding at March 31, 2016
3,235,313

 
$
6.72

 
4.39
 
$
2,659

Exercisable at March 31, 2016
2,980,731

 
$
6.56

 
4.13
 
$
2,658

Vested and Expected to vest at March 31, 2016 (2)
3,219,855

 
$
6.71

 
4.38
 
$
2,659


Explanatory Notes:
________________________________
(1)
During the three months ended March 31, 2016 and 2015, total intrinsic value of options exercised was $33.5 thousand and $78.5 thousand, respectively.
(2)
Includes a reduction to outstanding options at period end for expected forfeiture rate over the life of the options.

RSUs—For RSU awards that are not entitled to distribution equivalent rights, the fair value of the awards was determined using the Company's grant date common share price less the present value of the expected distributions forgone during the vesting period. For RSU awards that are entitled to distribution equivalent rights, the fair value of the awards was determined using the Company's grant date common share price.

During the three months ended March 31, 2016 the Company granted to employees and directors 1,093,015 RSUs. These awards generally vest over 3 years, with 33% vesting at the end of the grant year and the remainder of the award vesting ratably on a quarterly basis for the remaining 2 years (until the last vesting date as stated in the award agreement).


21
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The following table summarizes restricted share unit activity:
 
For the Three Months Ended March 31, 2016
 
Weighted Average
Grant Date Fair Value
Restricted share units outstanding, beginning of period
2,033,510

 
$
7.69

Granted (1)(2)
1,093,015

 
$
5.78

Vested
(240,611
)
 
$
8.09

Forfeited (3)
(5,988
)
 
$
8.35

Restricted share units outstanding, end of period
2,879,926

 
$
6.69


Explanatory Notes:
_________________________________
(1)
Weighted average grant date fair value excludes 360,000 of performance based RSUs for which performance hurdles will be determined in the future.
(2)
Shareholder approval is required to increase the number of shares available under the Company’s 2011 Stock and Incentive Plan to accommodate these new grants.
(3)
The forfeited share-based awards are returned to the grant pool for reissuance under the 2011 Stock Plan.

Note 11 —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,
 
2016 (1)
 
2015
 
(In thousands, except per share data)
Net income (loss) attributable to the Company - basic & diluted
$
4,505

 
$
5,428

 
 
 
 
Weighted-average shares - basic
25,355

 
25,279

Share options (2)
283

 
697

Warrants (3)
—

 
458

Unvested RSUs
171

 
138

Weighted-average shares - diluted
25,809

 
26,572

 
 
 
 
Earnings (loss) per share
 
 
 
Basic
$
0.18

 
$
0.21

Diluted
$
0.17

 
$
0.20

 

Explanatory Notes:
________________________________

(1)
Earnings per share basic and diluted has been calculated assuming that the Dissenting Shares are outstanding. Excluding the Dissenting Shares, total weighted-average shares basic and diluted would be 23,328,479 and 23,783,188, respectively, and earnings per share basic and diluted would be $0.19 (Note 10 and 16).
(2)
For the three months ended March 31, 2016 and 2015, the Company excluded anti-dilutive share options from the calculation of diluted EPS of $2.0 million and of $0.7 million, respectively.
(3)
For the three months ended March 31, 2016, the warrants were anti-dilutive for purposes of EPS. The warrants expire on January 24, 2017 (Note 13).


22

Note 12—Income Taxes

The following table summarizes the Company's tax provision:
 
For the Three Months Ended March 31,
 
2016
 
2015
 
(In thousands)
Income (loss) before income taxes
$
5,785

 
$
8,769

Income tax expense
$
1,278


$
3,087

Effective income tax rate (1)
22.1
%
 
35.2
%

Explanatory Note:
________________________________

(1)
During 2015, the Company adopted new accounting standards that impacted Income (loss) before income taxes for the three months ended March 31, 2015 (Note 2). The change has resulted in the change of the effective income tax rate. In addition, for the three months ended March 31, 2016 and 2015 deferred income tax expense (benefit) was $1.3 million and $(0.2) million, respectively.

As a result of the Reorganization Transaction, investment income earned by CIFC is not subject to tax at the entity level. The difference between the statutory tax rate and the effective tax rate, as well as the change in the effective tax rate compared to the prior year was primarily attributable to the Reorganization Transaction and to income/(losses) from non-controlling interests of Consolidated VIEs. The income/(losses) from non-controlling interests of Consolidated VIEs are included in book income/(loss) before income taxes but are not taxable income/(loss) to CIFC. 
During the three months ended March 31, 2016, 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 13—Related Party Transactions

DFR Holdings—As of March 31, 2016 and December 31, 2015, DFR Holdings owned approximately 18.8 million of the Company’s shares which was approximately 74% of the Company's outstanding shares and 70% on a fully diluted basis (in each case including the Dissenting Shares (Note 10 and 16)). Accordingly, DFR Holdings received cash distributions from the Company (see Note 10). In addition, DFR Holdings also holds warrants which provide DFR Holdings the right to purchase 2.0 million voting common shares. These warrants are scheduled to expire on January 24, 2017.

Under the Company's consulting agreement with DFR Holdings, DFR Holdings provides 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 both the three months ended March 31, 2016 and 2015, the Company paid $2.0 million and expensed $0.5 million in connection with the consulting agreement.

In addition, pursuant to the Third Amended and Restated Stockholders Agreement with DFR Holdings dated December 2, 2013, the Company agreed to nominate to the Company's 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, 2016 and 2015, the DFR Designees earned an aggregate $0.2 million related to their service as directors of CIFC.    
Other—As of March 31, 2016 and December 31, 2015, 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—All CIFC investments in credit funds are related party transactions (Note 2). As of both March 31, 2016 and December 31, 2015, key employees and directors of the Company (including related entities) invested an aggregate of $4.7 million in four CIFC managed Funds. Key employees are not charged management or incentive fees, where applicable, on their investment. Directors were charged management and/or incentive fees, where applicable, similar to certain other investors. For all periods presented in 2016 and 2015, these fees were de minimis.


23

Note 14—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 Condensed Consolidated Financial Statements.
Lease Commitments—During both the three months ended March 31, 2016 and 2015, total occupancy expense was $0.4 million.
Unfunded Loan Commitments— Certain of the Consolidated Entities have assets which include delayed draw term loans and unfunded revolvers. Unfunded loan commitments represent the estimated fair value of those delayed draw term loans and unfunded revolvers. As of March 31, 2016 and December 31, 2015, the Consolidated Entities had unfunded loan commitments of $1.3 million and $1.0 million, respectively. 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.

Note 15—Financial Information for Subsidiary Guarantors and Non-Guarantor Subsidiaries under the Company's Senior Notes    

CIFC Corp. issued Senior Notes which are deemed publicly registered notes. As such, the Company is required to present condensed consolidating financial information for CIFC and its consolidated subsidiaries within the notes to the consolidated financial statements in accordance with the criteria established for parent companies in the SEC’s Regulation S-X, Rule 3-10(f).

Obligations under the Senior Notes are fully and unconditionally guaranteed by CIFC and named guarantors (the “Guarantor”). Under the terms of the indenture, certain consolidated entities such as consolidated CLOs, warehouses and funds ("Investment Vehicles") do not guarantee the notes. Further, the indenture provides that so long as entities representing at least 90% of the Company’s consolidated total assets (other than assets represented by Investment Vehicles) are guarantors, the Company may designate entities within its corporate structure as non-guarantor entities ("Unrestricted Entities" and together with Investment Vehicles, "Non-Guarantors").

The following condensed consolidating financial information presents the Consolidating Balance Sheets, Statement of Operations, Comprehensive Income (Loss) and Cash Flows of the Guarantor, Non-Guarantor subsidiaries (or Investment Vehicles) and the eliminations necessary to arrive at the information for the Company on a consolidated basis as of March 31, 2016 and December 31, 2015, and for each of the three months ended March 31, 2016 and 2015. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. Certain immaterial balances have been reclassified in the prior year financial statements to conform to the current year presentation (Note 2). The condensed consolidating financial information below assumes that the Senior Notes were guaranteed by CIFC as of January 1, 2015. Further, all Consolidated Entities are considered Non-Guarantor subsidiaries.



24
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Condensed Consolidating Balance Sheets (Unaudited)
March 31, 2016
 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,094

 
$
382

 
$
50,535

 
$
—

 
$
—

 
$
52,011

Restricted cash and cash equivalents
—

 
—

 
1,694

 
—

 
—

 
1,694

Investments
—

 
—

 
159,177

 
—

 
(81,830
)
 
77,347

Intercompany investments in subsidiaries
177,449

 
104,281

 
113,497

 
—

 
(395,227
)
 
—

Receivables
154

 
3,546

 
7,909

 
—

 
(2,684
)
 
8,925

Prepaid and other assets
—

 
1,172

 
1,645

 
—

 
—

 
2,817

Deferred tax asset, net
—

 
43,110

 
—

 
—

 
—

 
43,110

Equipment and improvements, net
—

 
—

 
4,562

 
—

 
—

 
4,562

Intangible assets, net
—

 
5,393

 
—

 
—

 
—

 
5,393

Goodwill
—

 
66,549

 
9,451

 
—

 
—

 
76,000

Subtotal
178,697

 
224,433

 
348,470

 
—

 
(479,741
)
 
271,859

Assets of Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Restricted cash and cash equivalents
—

 
—

 
—

 
80,592

 
—

 
80,592

Due from brokers
—

 
—

 
—

 
24,293

 
—

 
24,293

Investments
—

 
—

 
—

 
1,346,963

 
—

 
1,346,963

Receivables
—

 
—

 
—

 
4,185

 
—

 
4,185

Prepaid and other assets
—

 
—

 
—

 
187

 
—

 
187

Total assets of Consolidated Entities
—

 
—

 
—

 
1,456,220

 
—

 
1,456,220

TOTAL ASSETS
$
178,697

 
$
224,433

 
$
348,470

 
$
1,456,220

 
$
(479,741
)
 
$
1,728,079

LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Distributions payable
$
8,670

 
$
—

 
$
—

 
$
—

 
$
—

 
$
8,670

Accrued and other liabilities
1,322

 
4,172

 
9,126

 
—

 
(2,169
)
 
12,451

Contingent liabilities
—

 
—

 
8,142

 
—

 
—

 
8,142

Long-term debt
—

 
156,237

 
—

 
—

 
—

 
156,237

   Subtotal
9,992

 
160,409

 
17,268

 
—

 
(2,169
)
 
185,500

Non-Recourse Liabilities of Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Due to brokers
—

 
—

 
—

 
49,350

 
—

 
49,350

Accrued and other liabilities
—

 
—

 
—

 
623

 
(394
)
 
229

Interest payable
—

 
—

 
—

 
4,595

 
(121
)
 
4,474

Long-term debt
—

 
—

 
—

 
1,360,255

 
(48,197
)
 
1,312,058

Total Non-Recourse Liabilities of Consolidated Entities
—

 
—

 
—

 
1,414,823

 
(48,712
)
 
1,366,111

TOTAL LIABILITIES
9,992

 
160,409

 
17,268

 
1,414,823

 
(50,881
)
 
1,551,611

EQUITY (Note 10)
 
 
 
 
 
 
 
 
 
 
 
Common shares
25

 
1

 
—

 
—

 
(1
)
 
25

Intercompany Preferred Units (1)
—

 
—

 
85,000

 
—

 
(85,000
)
 
—

Treasury shares
(435
)
 
—

 
—

 
—

 
—

 
(435
)
Additional paid-in capital
994,771

 
885,377

 
662,399

 
—

 
(1,547,781
)
 
994,766

Retained earnings (deficit)
(825,656
)
 
(821,354
)
 
(416,197
)
 
—

 
1,237,551

 
(825,656
)
TOTAL CIFC LLC SHAREHOLDERS’ EQUITY
168,705

 
64,024

 
331,202

 
—

 
(395,231
)
 
168,700

Consolidated Fund Equity/Noncontrolling interests (Note 2)
—

 
—

 
—

 
41,397

 
(33,629
)
 
7,768

TOTAL EQUITY
168,705

 
64,024

 
331,202

 
41,397

 
(428,860
)
 
176,468

TOTAL LIABILITIES AND EQUITY
$
178,697

 
$
224,433

 
$
348,470

 
$
1,456,220

 
$
(479,741
)
 
$
1,728,079


Explanatory Note:
_________________________________
(1)
CIFC Corp. holds 85.0 million of intercompany non-voting series A preferred units that bear an annual rate of 3.5%.


25
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Consolidating Balance Sheets (Unaudited)
December 31, 2015
 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
1,392

 
$
56,576

 
$
—

 
$
—

 
$
57,968

Restricted cash and cash equivalents
—

 
—

 
1,694

 
—

 
—

 
1,694

Investments
—

 
—

 
152,455

 
—

 
(81,759
)
 
70,696

Intercompany investments in subsidiaries
170,174

 
120,896

 
61,004

 
—

 
(352,074
)
 
—

Receivables
785

 
295

 
27,242

 
—

 
(21,247
)
 
7,075

Prepaid and other assets
—

 
1,621

 
352

 
—

 
—

 
1,973

Deferred tax asset, net
—

 
44,425

 
—

 
—

 
—

 
44,425

Equipment and improvements, net
—

 
—

 
4,866

 
—

 
—

 
4,866

Intangible assets, net
—

 
6,232

 
625

 
—

 
—

 
6,857

Goodwill
—

 
66,549

 
9,451

 
—

 
—

 
76,000

Subtotal
170,959

 
241,410

 
314,265

 
—

 
(455,080
)
 
271,554

Assets of Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Restricted cash and cash equivalents
—

 
—

 
—

 
94,018

 
—

 
94,018

Due from brokers
—

 
—

 
—

 
25,910

 
—

 
25,910

Investments
—

 
—

 
—

 
1,351,403

 
—

 
1,351,403

Receivables
—

 
—

 
—

 
4,109

 
—

 
4,109

Prepaid and other assets
—

 
—

 
—

 
209

 
—

 
209

Total assets of Consolidated Entities
—

 
—

 
—

 
1,475,649

 
—

 
1,475,649

TOTAL ASSETS
$
170,959

 
$
241,410

 
$
314,265

 
$
1,475,649

 
$
(455,080
)
 
$
1,747,203

LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Due to brokers
$
—

 
$
61

 
$
—

 
$
—

 
$
—

 
$
61

Accrued and other liabilities
50

 
24,185

 
14,808

 
—

 
(20,646
)
 
18,397

Contingent liabilities
—

 
—

 
8,338

 
—

 
—

 
8,338

Long-term debt
—

 
156,161

 
—

 
—

 
—

 
156,161

   Subtotal
50

 
180,407

 
23,146

 
—

 
(20,646
)
 
182,957

Non-Recourse Liabilities of Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Due to brokers
—

 
—

 
—

 
71,603

 
—

 
71,603

Accrued and other liabilities
—

 
—

 
—

 
631

 
(438
)
 
193

Interest payable
—

 
—

 
—

 
5,257

 
(167
)
 
5,090

Long-term debt
—

 
—

 
—

 
1,357,095

 
(48,537
)
 
1,308,558

Total Non-Recourse Liabilities of Consolidated Entities
—

 
—

 
—

 
1,434,586

 
(49,142
)
 
1,385,444

TOTAL LIABILITIES
50

 
180,407

 
23,146

 
1,434,586

 
(69,788
)
 
1,568,401

EQUITY (Note 10)
 
 
 
 
 
 
 
 
 
 
 
Common shares
25

 
25

 
—

 
—

 
(25
)
 
25

Intercompany Preferred Units (1)
—

 
—

 
85,000

 
—

 
(85,000
)
 
—

Additional paid-in capital
992,425

 
992,419

 
528,946

 
—

 
(1,521,371
)
 
992,419

Retained earnings (deficit)
(821,541
)
 
(931,441
)
 
(322,827
)
 
—

 
1,254,318

 
(821,491
)
TOTAL CIFC LLC SHAREHOLDERS’ EQUITY
170,909

 
61,003

 
291,119

 
—

 
(352,078
)
 
170,953

Consolidated Fund Equity / Noncontrolling interests (Note 2)
—

 
—

 
—

 
41,063

 
(33,214
)
 
7,849

TOTAL EQUITY
170,909

 
61,003

 
291,119

 
41,063

 
(385,292
)
 
178,802

TOTAL LIABILITIES AND EQUITY
$
170,959

 
$
241,410

 
$
314,265

 
$
1,475,649

 
$
(455,080
)
 
$
1,747,203


Explanatory Note:
_________________________________
(1)
CIFC Corp. holds 85.0 million of intercompany non-voting series A preferred units that bear an annual rate of 3.5%.




26
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Consolidating Statements of Operations (Unaudited)
For The Three Months Ended March 31, 2016

 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
Management and incentive fees
$
—

 
$
—

 
$
21,521

 
$
—

 
$
(1,706
)
 
$
19,815

Interest income from investments
—

 
744

 
3,217

 
—

 
(3,028
)
 
933

Interest income - Consolidated Entities
—

 
—

 
—

 
18,990

 
—

 
18,990

Total net revenues
—

 
744

 
24,738

 
18,990

 
(4,734
)
 
39,738

Expenses
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
—

 
—

 
9,514

 
—

 
—

 
9,514

Share-based compensation
130

 
130

 
2,121

 
—

 
—

 
2,381

Professional services
308

 
885

 
879

 
—

 
—

 
2,072

General and administrative expenses
132

 
644

 
1,741

 
—

 
—

 
2,517

Depreciation and amortization
—

 
839

 
457

 
—

 
—

 
1,296

Impairment of intangible assets
—

 
—

 
531

 
—

 
—

 
531

Corporate interest expense
—

 
1,957

 
744

 
—

 
(744
)
 
1,957

Expenses - Consolidated Entities
—

 
—

 
—

 
2,094

 
(1,706
)
 
388

Interest expense - Consolidated Entities
—

 
—

 
—

 
8,595

 
(175
)
 
8,420

Total expenses
570

 
4,455

 
15,987

 
10,689

 
(2,625
)
 
29,076

Other Gain (Loss)
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) on investments
—

 
—

 
1,677

 
—

 
(1,406
)
 
271

Net gain (loss) on contingent liabilities
—

 
—

 
(364
)
 
—

 
—

 
(364
)
Net gain (loss) on investments - Consolidated Entities
—

 
—

 
—

 
2,600

 
—

 
2,600

Net gain (loss) on liabilities - Consolidated Entities
—

 
—

 
—

 
(10,487
)
 
3,103

 
(7,384
)
Intercompany net gain (loss) on investments in subsidiaries
5,075

 
5,859

 
871

 
—

 
(11,805
)
 
—

Net other gain (loss)
5,075

 
5,859

 
2,184

 
(7,887
)
 
(10,108
)
 
(4,877
)
Income (loss) before income taxes
4,505

 
2,148

 
10,935

 
414

 
(12,217
)
 
5,785

   Income tax (expense) benefit
—

 
(1,278
)
 
—

 
—

 
—

 
(1,278
)
Net income (loss)
4,505


870


10,935


414


(12,217
)

4,507

Net (income) loss attributable to noncontrolling interests in Consolidated Entities
—


—


—


(414
)

412


(2
)
Net income (loss) attributable to CIFC LLC
$
4,505

 
$
870

 
$
10,935

 
$
—

 
$
(11,805
)
 
$
4,505

















27
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Consolidating Statements of Operations (Unaudited)
For The Three Months Ended March 31, 2015

 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
Revenues
 
 
 
 
 
 
 
 
 
 
 
Management and incentive fees
$
—

 
$
—

 
$
21,833

 
$
—

 
$
(219
)
 
$
21,614

Interest income from investments
—

 
—

 
2,736

 
—

 
(129
)
 
2,607

Interest income - Consolidated Entities
—

 
—

 
823

 
1,933

 
—

 
2,756

Total net revenues
—

 
—

 
25,392

 
1,933

 
(348
)
 
26,977

Expenses
 
 
 
 
 
 
 
 
 
 
 
Employee compensation and benefits
—

 
—

 
8,564

 
—

 
—

 
8,564

Share-based compensation
—

 
142

 
1,538

 
—

 
—

 
1,680

Professional services
—

 
1,078

 
848

 
—

 
—

 
1,926

General and administrative expenses
—

 
958

 
1,339

 
—

 
—

 
2,297

Depreciation and amortization
—

 
1,821

 
588

 
—

 
—

 
2,409

Impairment of intangible assets
—

 
281

 
—

 
—

 
—

 
281

Corporate interest expense
—

 
494

 
—

 
—

 
—

 
494

Expenses - Consolidated Entities
—

 
—

 
15

 
1,472

 
(219
)
 
1,268

Interest expense - Consolidated Entities
—

 
—

 
231

 
513

 
—

 
744

Total expenses
—

 
4,774

 
13,123

 
1,985

 
(219
)
 
19,663

Other Gain (Loss)
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) on investments
—

 
—

 
939

 
—

 
254

 
1,193

Net gain (loss) on contingent liabilities
—

 
—

 
(713
)
 
—

 
—

 
(713
)
Net gain (loss) on investments - Consolidated Entities
—

 
—

 
796

 
2,001

 
—

 
2,797

Net gain (loss) on liabilities - Consolidated Entities
—

 
—

 
—

 
(1,826
)
 
(434
)
 
(2,260
)
Net gain (loss) on other investments and derivatives - Consolidated Entities
—

 
—

 
—

 
438

 
—

 
438

Intercompany net gain (loss) on investments in subsidiaries
—

 
13,289

 
—

 
—

 
(13,289
)
 
—

Net other gain (loss)
—

 
13,289

 
1,022

 
613

 
(13,469
)
 
1,455

Income (loss) before income taxes
—

 
8,515

 
13,291

 
561

 
(13,598
)
 
8,769

   Income tax (expense) benefit
—

 
(3,087
)
 
—

 
—

 
—

 
(3,087
)
Net income (loss)
—


5,428


13,291


561


(13,598
)

5,682

Net (income) loss attributable to noncontrolling interests in Consolidated Entities
—


—


—


(561
)

307


(254
)
Net income (loss) attributable to CIFC LLC
$
—

 
$
5,428

 
$
13,291

 
$
—

 
$
(13,291
)
 
$
5,428












28
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Consolidating Statement of Comprehensive Income (Loss) (Unaudited)
For The Three Months Ended March 31, 2016

 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
Net income (loss)
$
4,505

 
$
870

 
$
10,935

 
$
414

 
$
(12,217
)
 
$
4,507

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
—

Comprehensive income (loss)
4,505

 
870

 
10,935

 
414

 
(12,217
)
 
4,507

Comprehensive (income) loss attributable to noncontrolling interests in Consolidated Entities
—

 
—

 
—

 
(414
)
 
412

 
(2
)
Comprehensive income (loss) attributable to CIFC LLC
$
4,505

 
$
870

 
$
10,935

 
$
—

 
$
(11,805
)
 
$
4,505



Consolidating Statement of Comprehensive Income (Loss) (Unaudited)
For The Three Months Ended March 31, 2015

 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
Net income (loss)
$
—

 
$
5,428

 
$
13,291

 
$
561

 
$
(13,598
)
 
$
5,682

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
—

 
—

Comprehensive income (loss)
—

 
5,428

 
13,291

 
561

 
(13,598
)
 
5,682

Comprehensive (income) loss attributable to noncontrolling interests in Consolidated Entities
—

 
—

 
—

 
(561
)
 
307

 
(254
)
Comprehensive income (loss) attributable to CIFC LLC
$
—

 
$
5,428

 
$
13,291

 
$
—

 
$
(13,291
)
 
$
5,428























29
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Consolidating Statement of Cash Flows (Unaudited)
For The Three Months Ended March 31, 2016

 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 

 
 

 
 

 
 

Net income (loss)
$
4,505

 
$
870

 
$
10,935

 
$
414

 
$
(12,217
)
 
$
4,507

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

Amortization of debt issuance costs and other
—

 
76

 
—

 
—

 
—

 
76

Share-based compensation
130

 
130

 
2,121

 
—

 
—

 
2,381

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

 
—

 
(1,315
)
 
—

 
1,408

 
93

Intercompany net (gain) loss on investments in subsidiaries
(5,075
)
 
(5,859
)
 
(871
)
 
—

 
11,805

 
—

Depreciation and amortization
—

 
839

 
457

 
—

 
—

 
1,296

Impairment of intangible assets
—

 
—

 
531

 
—

 
—

 
531

Deferred income tax expense (benefit)
—

 
1,315

 
—

 
—

 
—

 
1,315

Excess tax benefits from share-based payment arrangements
—

 
230

 
—

 
—

 
—

 
230

Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Net (gain) loss on investments
—

 
—

 
—

 
(2,600
)
 
—

 
(2,600
)
Net (gain) loss on liabilities
—

 
—

 
—

 
10,487

 
(3,103
)
 
7,384

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 
 
Receivables
631

 
(3,120
)
 
19,335

 
—

 
(18,696
)
 
(1,850
)
Prepaid and other assets
—

 
451

 
(1,299
)
 
—

 
—

 
(848
)
Due to brokers
—

 
(62
)
 
1

 
—

 
—

 
(61
)
Accrued and other liabilities
1,142

 
(20,015
)
 
(5,194
)
 
—

 
18,606

 
(5,461
)
Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Due from brokers
—

 
—

 
—

 
1,616

 
—

 
1,616

Purchase of investments
—

 
—

 
—

 
(114,723
)
 
—

 
(114,723
)
Sales of investments
—

 
—

 
—

 
121,766

 
—

 
121,766

Receivables
—

 
—

 
—

 
(52
)
 
—

 
(52
)
Due to brokers
—

 
—

 
—

 
(22,253
)
 
—

 
(22,253
)
Accrued and other liabilities
—

 
—

 
—

 
(11
)
 
43

 
32

Interest payable
—

 
—

 
—

 
(660
)
 
44

 
(616
)
Net cash provided by (used in) operating activities
1,333

 
(25,145
)
 
24,701

 
(6,016
)
 
(2,110
)
 
(7,237
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 

Purchases of investments
—

 
—

 
(17,553
)
 
—

 
1,419

 
(16,134
)
Sales of investments
—

 
—

 
12,466

 
—

 
(2,754
)
 
9,712

Intercompany investments in subsidiaries
—

 
22,474

 
(2,151
)
 
—

 
(20,323
)
 
—

Purchases of equipment and improvements
—

 
—

 
(61
)
 
—

 
—

 
(61
)
Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 
Change in restricted cash and cash equivalents
—

 
—

 
—

 
13,426

 
—

 
13,426

Net cash provided by (used in) investing activities
—

 
22,474

 
(7,299
)
 
13,426

 
(21,658
)
 
6,943

CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 
 
Repurchases of common shares
(435
)
 
—

 
—

 
—

 
—

 
(435
)
Intercompany contributions
—

 
1,891

 
9,629

 
24

 
(11,544
)
 
—

Intercompany distributions
—

 
—

 
(32,073
)
 
(24
)
 
32,097

 
—

Proceeds from the exercise of options
241

 
—

 
—

 
—

 
—

 
241

Payments for tax from the net delivery of restricted share units
(45
)
 
—

 
—

 
—

 
—

 
(45
)
Payments on contingent liabilities
—

 
—

 
(999
)
 
—

 
—

 
(999
)
Excess tax benefits from share-based payment arrangements

—

 
(230
)
 
—

 
—

 
—

 
(230
)
Consolidated Entities:
 
 
 
 
 
 
 
 
 
 
 

Distributions to noncontrolling interests
—

 
—

 
—

 
(83
)
 
—

 
(83
)
Proceeds from issuance of long-term debt
—

 
—

 
—

 
3,830

 
—

 
3,830

Payments made on long-term debt
—

 
—

 
—

 
(11,157
)
 
3,215

 
(7,942
)
Net cash provided by (used in) financing activities
(239
)
 
1,661

 
(23,443
)
 
(7,410
)
 
23,768

 
(5,663
)
Net increase (decrease) in cash and cash equivalents
1,094

 
(1,010
)
 
(6,041
)
 
—

 
—

 
(5,957
)
Cash and cash equivalents at beginning of period
—

 
1,392

 
56,576

 
—

 
—

 
57,968

Cash and cash equivalents at end of period
$
1,094

 
$
382

 
$
50,535

 
$
—

 
$
—

 
$
52,011





30
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Consolidating Statement of Cash Flows (Unaudited)
For The Three Months Ended March 31, 2015
 
Parent/ CIFC LLC
 
Subsidiary Issuer/ CIFC Corp.
 
Subsidiary Guarantors
 
Non Guarantors
 
Eliminations
 
CIFC LLC Consolidated
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
 

 
 

 
 

 
 

Net income (loss)
$
—

 
$
5,428

 
$
13,291

 
$
561

 
$
(13,598
)
 
$
5,682

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

Amortization of debt issuance costs and other
—

 
22

 
—

 
—

 
—

 
22

Share-based compensation
—

 
142

 
1,538

 
—

 
—

 
1,680

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

 
—

 
(225
)
 
—

 
(255
)
 
(480
)
Intercompany net (gain) loss on investments in subsidiaries
—

 
(13,289
)
 
—

 
—

 
13,289

 
—

Depreciation and amortization
—

 
1,821

 
588

 
—

 
—

 
2,409

Impairment of intangible assets
—

 
281

 
—

 
—

 
—

 
281

Deferred income tax expense (benefit)
—

 
(150
)
 
—

 
—

 
—

 
(150
)
Excess tax benefits from share-based payment arrangements
—

 
(8
)
 
—

 
—

 
—

 
(8
)
Consolidated Entities:


 


 
 
 
 
 
 
 


Net (gain) loss on investments
—

 
—

 
(796
)
 
(2,001
)
 
—

 
(2,797
)
Net (gain) loss on liabilities
—

 
—

 
—

 
1,826

 
434

 
2,260

Net other (gain) loss
—

 
—

 
—

 
(438
)
 
—

 
(438
)
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
 
 


Due from brokers
—

 
—

 
(974
)
 
—

 
—

 
(974
)
Receivables
—

 
721

 
(3,163
)
 
—

 
2,903

 
461

Prepaid and other assets
—

 
486

 
(1,489
)
 
—

 
—

 
(1,003
)
Due to brokers
—

 
—

 
6,245

 
—

 
—

 
6,245

Accrued and other liabilities
—

 
3,480

 
(7,920
)
 
—

 
(2,514
)
 
(6,954
)
Consolidated Entities:
 
 
 
 
 
 
 
 
 
 


Due from brokers
—

 
—

 
14,459

 
(4,111
)
 
—

 
10,348

Purchase of investments
—

 
—

 
(55,017
)
 
(88,697
)
 
—

 
(143,714
)
Sales of investments
—

 
—

 
47,462

 
21,677

 
—

 
69,139

Receivables
—

 
—

 
(352
)
 
(86
)
 
—

 
(438
)
Due to brokers
—

 
—

 
(7,882
)
 
55,950

 
—

 
48,068

Accrued and other liabilities
—

 
—

 
6

 
384

 
(390
)
 
—

Interest payable
—

 
—

 
(8
)
 
18

 
—

 
10

Net cash provided by (used in) operating activities
—

 
(1,066
)
 
5,763

 
(14,917
)
 
(131
)
 
(10,351
)
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 


Proceeds from the sale of management contracts
—

 
—

 
—

 
—

 
—

 
—

Purchases of investments
—

 
—

 
(78,632
)
 
—

 
65,439

 
(13,193
)
Sales of investments
—

 
—

 
57,449

 
—

 
(22,148
)
 
35,301

Intercompany investments in subsidiaries
—

 
(123,962
)
 
—

 
—

 
123,962

 
—

Intercompany distributions from subsidiaries
—

 
123,962

 
—

 
—

 
(123,962
)
 
—

Purchases of equipment and improvements
—

 
—

 
(403
)
 
—

 
—

 
(403
)
Consolidated Entities:
 
 
 
 
 
 
 
 
 
 


Change in restricted cash and cash equivalents
—

 
—

 
755

 
(55,628
)
 
—

 
(54,873
)
Net cash provided by (used in) investing activities
—

 
—

 
(20,831
)
 
(55,628
)
 
43,291

 
(33,168
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
 
 
 
 
 
 


Intercompany contributions
—

 
—

 
123,962

 
—

 
(123,962
)
 
—

Intercompany distributions
—

 
—

 
(123,962
)
 
—

 
123,962

 
—

Proceeds from the exercise of options
—

 
121

 
—

 
—

 
—

 
121

Payments for tax from the net delivery of restricted share units
—

 
(265
)
 
—

 
—

 
—

 
(265
)
Payments on contingent liabilities
—

 
—

 
(1,559
)
 
—

 
—

 
(1,559
)
Excess tax benefits from share-based payment arrangements

—

 
8

 
—

 
—

 
—

 
8

Consolidated Entities:
 
 
 
 
 
 
 
 
 
 


Contributions from noncontrolling interests
—

 
—

 
—

 
14,712

 
(2,612
)
 
12,100

Distributions to noncontrolling interests
—

 
—

 
—

 
(970
)
 
—

 
(970
)
Proceeds from issuance of long-term debt
—

 
—

 
—

 
73,777

 
10,323

 
84,100

Payments made on long-term debt
—

 
—

 
—

 
(16,974
)
 
(50,871
)
 
(67,845
)
Net cash provided by (used in) financing activities
—

 
(136
)
 
(1,559
)
 
70,545

 
(43,160
)
 
25,690

Net increase (decrease) in cash and cash equivalents
—

 
(1,202
)
 
(16,627
)
 
—

 
—

 
(17,829
)
Cash and cash equivalents at beginning of period
—

 
2,156

 
57,134

 
—

 
—

 
59,290

Cash and cash equivalents at end of period
$
—

 
$
954

 
$
40,507

 
$
—

 
$
—

 
$
41,461



31
CIFC LLC AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


Note 16—Subsequent Events

Subsequent to quarter end, the Company's board of directors declared a cash distribution of $0.25 per share, composed of a $0.10 per share quarterly distribution and a $0.15 per share special distribution. The distribution will be paid on May 24, 2016 to shareholders of record as of the close of business on May 17, 2016.
On April 28, 2016, the Dissenting Shareholders filed an appraisal petition with the Delaware Court. The Dissenting Shareholders may (i) be paid the fair value of the Dissenting Shares as determined by the Delaware Courts or (ii) settle upon terms agreed to by the parties.





32

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 (this “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 this Quarterly Report on Form 10-Q. Unless otherwise noted or the context otherwise requires, we refer to CIFC LLC as “CIFC,” and to CIFC and its subsidiaries as “we,” “us,” “our,” “our company,” or “the Company.”

Overview
 
CIFC is a Delaware limited liability company headquartered in New York City. We are a private debt manager specializing in secured U.S. corporate loan strategies. Our primary business is to provide investment management services for institutional investors, including pension funds, hedge funds, asset management firms, banks, insurance companies and other types of investors around the world.
Fee Earning Assets Under Management (“Fee Earning AUM” or “AUM”) refers to principal balance, net asset value or value of assets managed by us on which we earn management and/or incentive fees. Our AUM is primarily comprised of Collateralized Loan Obligations ("CLOs"). In addition, we manage credit funds and other loan-based products (together, "Non-CLO products" and together with CLOs, "Funds"). We manage these credit products through opportunistic investment strategies where we seek to generate current income and/or capital appreciation, primarily through senior secured corporate loan investments (“SSCLs”) 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 based on a percentage of AUM of the Funds. Incentive fees are earned based on the performance of the Funds. Investment income represents interest income and realized/unrealized gains and losses on investments in the products sponsored by us and third parties.

On December 31, 2015, CIFC Corp., the formerly publicly traded entity, completed a series of transactions (the "Reorganization Transaction") to become a subsidiary of CIFC LLC. The series of transactions changed the Company's top-level form of organization from a corporation to a limited liability company. As of January 1, 2016, we were taxed as a partnership. The Reorganization Transaction was a transaction between entities under common control, therefore; the prior year comparative Condensed Consolidated Financial Statements include the Consolidated Balance Sheet, Statement of Operations, Comprehensive Income (Loss), Equity and Cash Flows as of and for the three months ended March 31, 2015 of CIFC Corp.
Executive Overview

The market volatility from last year continued into the first quarter, with loan prices declining by 1.18% through mid-February, followed by a sharp increase through the end of March, resulting in a positive gain of 1.55% for the quarter (source: S&P/LSTA). CLO issuance was muted during the quarter, with only 18 CLOs being priced for aggregate AUM of $7.5 billion, compared to $30.7 billion in the first quarter of 2015 (source: S&P/LCD). We expect CLO issuance to pick up as investor demand has begun shifting back to the new issue CLO market and risk assets continue to rally. Our corporate credit and structured credit funds continue to receive interest from investors. We launched a new white labeled loan fund in Europe this quarter and launched a new structured product Separately Managed Account in April. Our two corporate credit funds performed very well and were ranked by eVestment (an industry performance analytics company) as top performers in 2015. In addition, CIFC was awarded four manager awards for 2015 by Creditflux including “Creditflux Manager of the Year.”


33

Fee Earning AUM

Fee Earning AUM or AUM refers to the assets managed by the Company on which we receive management fees and/or incentive fees. Generally, with respect to CLOs, management fees are paid to the Company 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. The following table summarizes Fee Earning AUM:
 
 
March 31, 2016
 
December 31, 2015
 
March 31, 2015
(in thousands, except # of Accounts) (1)(2)
 
Number of Accounts
 
Fee Earning AUM
 
Number of Accounts
 
Fee Earning AUM
 
Number of Accounts
 
Fee Earning AUM
Post 2011 CLOs
 
18

 
$
9,841,977

 
18

 
$
9,860,519

 
14

 
$
8,005,579

Legacy CLOs (3)
 
10

 
2,393,647

 
10

 
2,559,066

 
18

 
4,583,387

     Total CLOs
 
28

 
12,235,624

 
28

 
12,419,585

 
32

 
12,588,966

Credit Funds (4)
 
13

 
1,156,308

 
12

 
1,062,712

 
8

 
777,040

Other Loan-Based Products (4)
 
2

 
563,707

 
2

 
573,190

 
2

 
667,654

Total Non-CLOs (4)
 
15

 
1,720,015

 
14

 
1,635,902

 
10

 
1,444,694

Total Loan-Based AUM
 
43

 
13,955,639

 
42

 
14,055,487

 
42

 
14,033,660

ABS and Corporate Bond CDOs
 
8

 
553,933

 
8

 
592,798

 
8

 
667,268

Total Fee Earning AUM
 
51

 
$
14,509,572

 
50

 
$
14,648,285

 
50

 
$
14,700,928


Explanatory Notes:
_________________________________
(1)
Fee Earning AUM attributable to ABS and Corporate Bond CDO products 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 the 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 March 31,
 
Last Twelve Months
 
 
March 31, 2016
 
 
(In thousands)
Total loan-based AUM - Beginning Balance
 
$
14,055,487

 
$
14,033,660

CLO New Issuances
 
—

 
1,999,709

CLO Paydowns
 
(190,261
)
 
(2,339,665
)
Net Subscriptions to Credit Funds
 
75,115

 
356,049

Net Redemptions from Other Loan-Based Products
 
(9,483
)
 
(103,947
)
Other (1)
 
24,781

 
9,833

Total loan-based AUM - Ending Balance
 
13,955,639

 
13,955,639

Total CDOs - Ending Balance
 
553,933

 
553,933

Total Fee Earning AUM - Ending Balance
 
$
14,509,572

 
$
14,509,572


Explanatory Note:
_________________________________
(1)     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, 2016, we launched one new fund and increased subscriptions to existing funds for an aggregate of $75.1 million of new Fee Earning AUM. All CDOs and certain CLOs we manage have passed their reinvestment periods (see table below). Therefore, proceeds from paydowns are required to repay the CLO's or CDO's liabilities. As expected, AUM on these CLOs and CDOs continued to decline during the three months ended March 31, 2016. This, along with redemptions from other loan-based products, reduced AUM by $232.3 million, resulting in an overall net decrease in AUM of $138.7 million.


34

Loan-based AUM
    
Since 2012, CIFC has raised $11.5 billion of new AUM through organic growth, which has more than offset the run-off from Legacy CLOs (including acquired CLOs). Our Legacy CLO AUM of $2.4 billion is less than a fifth of our total CLO AUM of $12.2 billion, and we anticipate it will run off over the next three years.


35

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, 2016
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
 
$
235,678

 
01/14
 
01/15
 
2023
CIFC Funding 2012-I, Ltd.
 
07/12
 
453,522

 
08/14
 
08/16
 
2024
CIFC Funding 2012-II, Ltd.
 
11/12
 
733,201

 
12/14
 
12/16
 
2024
CIFC Funding 2012-III, Ltd.
 
01/13
 
504,533

 
01/15
 
01/17
 
2025
CIFC Funding 2013-I, Ltd.
 
03/13
 
504,698

 
04/15
 
04/17
 
2025
CIFC Funding 2013-II, Ltd.
 
06/13
 
625,877

 
07/15
 
07/17
 
2025
   CIFC Funding 2013-III, Ltd.
 
09/13
 
401,500

 
10/15
 
10/17
 
2025
   CIFC Funding 2013-IV, Ltd.
 
11/13
 
505,498

 
11/15
 
11/17
 
2024
   CIFC Funding 2014, Ltd.
 
03/14
 
603,392

 
04/16
 
04/18
 
2025
CIFC Funding 2014-II, Ltd.
 
05/14
 
807,077

 
05/16
 
05/18
 
2026
CIFC Funding 2014-III, Ltd.
 
07/14
 
703,759

 
07/16
 
07/18
 
2026
CIFC Funding 2014-IV, Ltd.
 
09/14
 
602,368

 
10/16
 
10/18
 
2026
CIFC Funding 2014-V, Ltd.
 
12/14
 
553,986

 
10/16
 
01/19
 
2027
CIFC Funding 2015-I, Ltd.
 
03/15
 
601,584

 
09/16
 
04/19
 
2027
CIFC Funding 2015-II, Ltd.
 
05/15
 
501,209

 
10/16
 
04/19
 
2027
CIFC Funding 2015-III, Ltd.
 
07/15
 
501,654

 
10/17
 
10/19
 
2027
CIFC Funding 2015-IV, Ltd.
 
09/15
 
500,343

 
10/18
 
10/20
 
2027
CIFC Funding 2015-V, Ltd.
 
11/15
 
502,098

 
04/18
 
04/20
 
2027
Total Post 2011 CLOs
 
 
 
9,841,977

 
 
 
 
 
 
Legacy CLOs
 
 
 
 
 
 
 
 
 
 
Bridgeport CLO Ltd. 
 
06/06
 
243,760

 
10/09
 
07/13
 
2020
Burr Ridge CLO Plus Ltd. 
 
12/06
 
166,199

 
06/12
 
03/13
 
2023
CIFC Funding 2006-II, Ltd. 
 
12/06
 
150,006

 
03/11
 
03/13
 
2021
CIFC Funding 2007-I, Ltd. 
 
02/07
 
172,201

 
05/11
 
11/13
 
2021
CIFC Funding 2007-II, Ltd. 
 
03/07
 
309,091

 
04/11
 
04/14
 
2021
Schiller Park CLO Ltd. 
 
05/07
 
254,828

 
07/11
 
04/13
 
2021
Bridgeport CLO II Ltd. 
 
06/07
 
344,527

 
12/10
 
09/14
 
2021
CIFC Funding 2007-III, Ltd. 
 
07/07
 
251,361

 
07/10
 
07/14
 
2021
Primus CLO II, Ltd. 
 
07/07
 
212,983

 
10/11
 
07/14
 
2021
Columbus Nova 2007-II, Ltd.
 
11/07
 
288,691

 
10/10
 
10/14
 
2021
Total Legacy CLOs
 
 
 
2,393,647

 
 
 
 
 
 
Total CLOs
 
 
 
$
12,235,624

 
 
 
 
 
 
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. 

36

Results of Consolidated Operations
 
The 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 with the Consolidated Funds, the "Consolidated Entities"). Consolidated VIEs include certain CLOs and warehouses we manage. 

The following table presents our comparative Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015:

 
For the Three Months Ended March 31,
 
2016 vs. 2015
 
2016
 
2015
 
Change
 
%
 
(in thousands, except share and per share amounts)
 
 
Revenues
 

 
 

 
 

 
 
Management and incentive fees
$
19,815

 
$
21,614

 
$
(1,799
)
 
(8
)%
Interest income from investments
933

 
2,607

 
(1,674
)
 
(64
)%
Interest income - Consolidated Entities
18,990

 
2,756

 
16,234

 
589
 %
Total net revenues
39,738

 
26,977


12,761

 
47
 %
Expenses
 

 
 

 
 

 
 
Employee compensation and benefits
9,514

 
8,564

 
950

 
11
 %
Share-based compensation
2,381

 
1,680

 
701

 
42
 %
Professional services
2,072

 
1,926

 
146

 
8
 %
General and administrative expenses
2,517

 
2,297

 
220

 
10
 %
Depreciation and amortization
1,296

 
2,409

 
(1,113
)
 
(46
)%
Impairment of intangible assets
531

 
281

 
250

 
89
 %
Corporate interest expense
1,957

 
494

 
1,463

 
296
 %
Expenses - Consolidated Entities
388

 
1,268

 
(880
)
 
(69
)%
Interest expense - Consolidated Entities
8,420

 
744

 
7,676

 
1,032
 %
Total expenses
29,076

 
19,663


9,413

 
48
 %
Other Gain (Loss)
 

 
 

 
 

 
 
Net gain (loss) on investments
271

 
1,193

 
(922
)
 
(77
)%
Net gain (loss) on contingent liabilities
(364
)
 
(713
)
 
349

 
(49
)%
Net gain (loss) on investments - Consolidated Entities
2,600


2,797

 
(197
)
 
(7
)%
Net gain (loss) on liabilities - Consolidated Entities
(7,384
)
 
(2,260
)
 
(5,124
)
 
227
 %
Net gain (loss) on other investments and derivatives - Consolidated Entities
—

 
438

 
(438
)
 
(100
)%
Net other gain (loss)
(4,877
)
 
1,455

 
(6,332
)
 
(435
)%
Income (loss) before income taxes
5,785


8,769


(2,984
)

(34
)%
Income tax (expense) benefit
(1,278
)

(3,087
)

1,809


(59
)%
Net income (loss)
4,507

 
5,682

 
(1,175
)
 
(21
)%
Net (income) loss attributable to noncontrolling interests in Consolidated Entities
(2
)
 
(254
)
 
252

 
(99
)%
Net income (loss) attributable to CIFC LLC
$
4,505

 
$
5,428

 
$
(923
)
 
$
—

Earnings (loss) per share (1):
 

 
 

 
 

 
 
Basic
$
0.18

 
$
0.21

 
$
(0.03
)
 
(14
)%
Diluted
$
0.17

 
$
0.20

 
$
(0.03
)
 
(15
)%
Weighted-average number of shares outstanding (1):
 

 
 

 
 

 
 
Basic
25,355,064

 
25,279,226

 
75,838

 
—
 %
Diluted
25,809,402

 
26,572,416

 
(763,014
)
 
(3
)%

Explanatory Note:
_________________________________
(1)
Earnings per share basic and diluted has been calculated assuming that the Dissenting Shares are outstanding. Excluding the Dissenting Shares, total weighted-average shares basic and diluted would be 23,328,479 and 23,783,188, respectively, and earnings per share basic and diluted would be $0.19. See ("Part 1. Item 1.   Condensed Consolidated Financial Statements and Notes (Unaudited)—(Note 10 and 16)."
    
Total Net Revenues—GAAP net revenues include management and incentive fees from unconsolidated CLOs, CDOs and Non-CLO products and net investment income from investments in unconsolidated entities.


37

    Management and incentive fees—Quarter over quarter subordinated fees were lower as a result of run-off in AUM of certain Legacy CLOs, which had higher fees compared to Post 2011 CLOs.

Interest income from investments—See Net results of Consolidated Entities below.

Interest income - Consolidated Entities—See Net results of Consolidated Entities below.

Total Expenses

Employee compensation and benefits—The increase primarily relates to contractual fee sharing arrangements which required the Company to pay certain former employees a portion of incentive fees collected on CLOs acquired from Columbus Nova Credit Investments Management, LLC ("CNCIM"). During the first quarter of 2016, we received higher incentive fees on such CLOs.

Share based compensation—During the first quarter of 2016, we expensed a full quarter of amortization on RSUs granted since the second quarter of 2015 partially offset by the reduction of RSU and option amortization expense from awards that have fully vested since the second quarter of 2015.

Depreciation and amortization—In 2016, we had lower amortization expense from intangible assets as certain management contracts were either impaired or fully amortized in the prior year.
 
Corporate Interest Expense—Current year increase in corporate interest expense is related to (i) the issuance of $40.0 million in aggregate principal amount of 8.5% unsecured senior notes in November 2015 and (ii) the increase in interest on the March Junior Subordinated Notes from an annual rate of 1% to LIBOR plus 2.58% in April 2015.
 
Consolidated Entities - Expenses—See Net results of Consolidated Entities below.

Consolidated Entities - Interest Expense—See Net results of Consolidated Entities below.

Net other income (expense) and gain (loss)

Net gain (loss) on investment—Net gain (loss) on investment includes the unrealized appreciation or depreciation and realized gains and losses on the investments in CLOs, warehouses and credit funds which we are not required to be consolidated. In general, the decrease primarily related to a lower increase in market value of loans and CLO securities compared to the same period in the prior year. See Non-GAAP Measures section for further discussion.

Consolidated Entities - Net gain (loss) on liabilities—See Net results of Consolidated Entities below.
    
Consolidated Entities - Net gain (loss) on other investments and derivatives—See Net results of Consolidated Entities below.

Income tax expense/benefit—As a result of the Reorganization Transaction, investment income earned by CIFC is not subject to tax at the entity level. The difference between the statutory tax rate and the effective tax rate, as well as the change in the effective tax rate compared to the prior year was primarily attributable to the Reorganization Transaction and to income/(losses) from non-controlling interests of Consolidated VIEs. The income/(losses) from non-controlling interests of Consolidated VIEs are included in book income/(loss) before income taxes but are not taxable income/(loss) to CIFC. 

Net results of Consolidated Entities—During the three months ended March 31, 2016, the Company consolidated 2 credit funds and 2 CLOs. During the three months ended March 31, 2015, the Company consolidated 2 credit funds, 1 CLO and 2 warehouses. As such, balances in the prior year included the operating results of 1 additional consolidated entity than in the current year.


38

ENI and Deconsolidated Non-GAAP Statements (Non-GAAP Measures)
 
ENI and ENI EBITDA
    
ENI and ENI after taxes are non-GAAP financial measures of profitability which management uses in addition to GAAP Net income (loss) attributable to CIFC LLC to measure the performance of our core business (excluding non-core products). We believe ENI and ENI after taxes reflect the nature and substance of the business, the economic results achieved by management fee revenues from the management of client funds and earnings on our investments. ENI represents GAAP Net income (loss) attributable to CIFC LLC excluding (i) current and deferred 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 Holdings LLC in June 2011, (iv) revenues attributable to non-core investment products, (v) advances for fund organizational expenses and (vi) certain other items as detailed. ENI after taxes equals ENI less current taxes.

ENI EBITDA is also a non-GAAP financial measure that management considers, in addition to GAAP Net income (loss) attributable to CIFC LLC, to evaluate our core performance. ENI EBITDA represents ENI before corporate interest expense and depreciation of fixed assets, a non-cash item.

ENI and ENI EBITDA 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 and ENI EBITDA should be considered an addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.


39

The following table presents our components of ENI for the three months ended March 31, 2016 and 2015 (1):
 
For the Three Months Ended March 31,
 
2016 vs. 2015
 
2016
 
2015
 
Change
 
% Change
 
(in thousands, except per share amounts)
 
 
Adjusted revenues
 
 
 
 
 
 
 
Senior Fees from CLOs
$
5,940

 
$
5,792

 
$
148

 
3%
Subordinated Fees from CLOs
8,002

 
9,169

 
(1,167
)
 
(13)%
Management Fees from Non-CLO products
1,186

 
861

 
325

 
38%
Total management Fees
15,128

 
15,822

 
(694
)
 
(4)%
Incentive Fees
4,282

 
4,000

 
282

 
7%
Net investment income (2)
4,894

 
6,107

 
(1,213
)
 
(20)%
Total adjusted net revenues
24,304

 
25,929

 
(1,625
)
 
(6)%
 
 
 
 
 
 
 
 
Adjusted expenses
 
 
 
 
 

 
 
Employee compensation and benefits
8,030

 
8,284

 
(254
)
 
(3)%
Share-based compensation
2,407

 
1,676

 
731

 
44%
Professional services
2,013

 
1,851

 
162

 
9%
General and administrative expenses
2,516

 
2,183

 
333

 
15%
Depreciation and amortization
364

 
333

 
31

 
9%
Corporate interest expense
1,957

 
494

 
1,463

 
296%
Total adjusted expenses
17,287

 
14,821

 
2,466

 
17%
 
 
 
 
 
 
 
 
ENI
$
7,017

 
$
11,108

 
$
(4,091
)
 
(37)%
 
 
 
 
 
 
 
 
Less: Income tax (expense) benefit - current
37

 
(3,236
)
 
3,273

 
(101)%
ENI after taxes
7,054

 
7,872

 
(818
)
 
(10)%
 
 
 
 
 
 
 
 
ENI
$
7,017

 
$
11,108

 
$
(4,091
)
 
(37)%
Add: Corporate interest expense
1,957

 
494

 
1,463

 
296%
Add: Depreciation of fixed assets
364

 
333

 
31

 
9%
ENI EBITDA
$
9,338

 
$
11,935

 
$
(2,597
)
 
(22)%
 
 
 
 
 
 
 
 
ENI after taxes per share - basic (3)
$
0.28

 
$
0.31

 
$
(0.03
)
 
(10)%
ENI after taxes per share - diluted (3)
$
0.27

 
$
0.30

 
$
(0.03
)
 
(10)%

Explanatory Notes:
______________________________
(1)
Amounts in this table can be derived by taking the deconsolidated non-GAAP Statement of Operations and adjusting balances using the ENI reconciliation.
(2)Net investment income for the respective periods include:
 
For the Three Months Ended March 31,
 
2016 vs. 2015
 
2016
 
2015
 
Change
 
% Change
 
(in thousands)
 
 
Interest income
$
4,771

 
$
2,011

 
$
2,760

 
137%
Realized gains (losses)
(2,463
)
 
2,281

 
(4,744
)
 
(208)%
Unrealized gains (losses)
2,586

 
1,815

 
771

 
42%
Net investment income
$
4,894

 
$
6,107

 
$
(1,213
)
 
(20)%

(3)
GAAP weighted average shares outstanding is used as ENI weighted average shares outstanding. Earnings per share basic and diluted has been calculated assuming that the Dissenting Shares are outstanding. Excluding the Dissenting Shares, total ENI weighted average shares basic and diluted for the three months ended March 31, 2016 will be 23,328,479 and 23,783,188, respectively, and ENI after taxes per share basic and diluted would be $0.30. See ("Part 1. Item 1.   Condensed Consolidated Financial Statements and Notes (Unaudited)—(Note 10 and 16)."


40

For the three months ended March 31, 2016 and 2015:

Adjusted net revenues—Quarter over quarter subordinated management fees decreased by $1.2 million, or 13%, as a result of run-off in AUM of certain legacy CLOs, which had higher subordinated fees compared to Post 2011 CLOs. Further, Net investment income also decreased by $1.2 million, or 20%, primarily related to a lower increase in the market value of loans and CLO securities compared to the same period in the prior year.

Adjusted expenses—Total adjusted expenses increased by $2.5 million, or 17%, primarily due to increases in adjusted Corporate interest expense and adjusted Share-based compensation.

Adjusted corporate interest expense—Current year increase in adjusted Corporate interest expense is related to (i) the issuance of $40.0 million in aggregate principal amount of 8.5% unsecured senior notes in November of 2015 and (ii) the increase in interest on the March Junior Subordinated Notes from an annual rate of 1% to LIBOR plus 2.58% in April 2015.

Adjusted share based compensation— Total adjusted Share based compensation increased in the current quarter as we recognized a full year of amortization on equity awards granted since the second quarter of 2015 partially offset by the reduction of RSU and option amortization expense from awards that have fully vested since the second quarter of 2015.

The following is a reconciliation of GAAP Net income (loss) attributable to CIFC LLC to ENI:
 
For the Three Months Ended March 31,
 
2016
 
2015
 
(in thousands)
GAAP Net income (loss) attributable to CIFC LLC
$
4,505

 
$
5,428

Reconciling and other items:
 
 
 
Income tax expense - deferred & current
1,278

 
3,087

Amortization and impairment of intangibles
1,463

 
2,357

Management fee sharing arrangements (1)
(2,003
)
 
(1,839
)
Net (gain)/loss on contingent liabilities and other
364

 
713

Employee compensation costs (2)
1,458

 
284

Management fees attributable to non-core funds
(108
)
 
(173
)
Other (3)
60

 
1,251

Total reconciling and other items
2,512

 
5,680

ENI
7,017


11,108

 
 
 
 
Less: Income tax (expense) benefit - current
37

 
(3,236
)
ENI after taxes
$
7,054

 
$
7,872

 
 
 
 
ENI
7,017


11,108

Add: Corporate interest expense
1,957

 
494

Add: Depreciation of fixed assets
364

 
333

ENI EBITDA
$
9,338

 
$
11,935


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, or an affiliate thereof). Management fees are presented on a gross basis for GAAP and on a net basis for ENI.
(2)
Employee compensation and benefits 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 CNCIM.
(3)
In 2016, other represents certain professional services. In 2015, other represents fund set up expenses, which are written-off upfront for GAAP purposes and are amortized over the life of the fund for Non-GAAP ENI, and certain professional services.


41

Deconsolidated Non-GAAP Statements
The Deconsolidated Non-GAAP Statements represent the Consolidated GAAP statements adjusted to eliminate the impact of the Consolidated Entities. On the Consolidated Statement of Operations, we have reclassified the sum of Net results of Consolidated Entities, Net (income) loss attributable to noncontrolling interests 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 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, 2016 and 2015:

 
 
For the Three Months Ended March 31,
 
 
2016
 
2015
(In thousands)
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
Revenues
 
 
 
 
 
 
 
 
 
 
 
 
Management and incentive fees
 
$
19,815

 
$
1,706

 
$
21,521

 
$
21,614

 
$
220

 
$
21,834

Interest income/Net investment income
 
933

 
3,961

 
4,894

 
2,607

 
2,438

 
5,045

Interest income - Consolidated Entities
 
18,990

 
(18,990
)
 
—

 
2,756

 
(2,756
)
 
—

Total net revenues
 
39,738

 
(13,323
)
 
26,415

 
26,977

 
(98
)
 
26,879

Expenses
 
 
 
 
 

 
 
 
 
 
 
Employee compensation and benefits
 
9,514

 
—

 
9,514

 
8,564

 
—

 
8,564

Share-based compensation
 
2,381

 
—

 
2,381

 
1,680

 
—

 
1,680

Professional services
 
2,072

 
—

 
2,072

 
1,926

 
—

 
1,926

General and administrative expenses
 
2,517

 
—

 
2,517

 
2,297

 
—

 
2,297

Depreciation and amortization
 
1,296

 
—

 
1,296

 
2,409

 
—

 
2,409

Impairment of intangible assets
 
531

 
—

 
531

 
281

 
—

 
281

Corporate interest expense
 
1,957

 
—

 
1,957

 
494

 
—

 
494

Expenses - Consolidated Entities
 
388

 
(388
)
 
—

 
1,268

 
(1,268
)
 
—

Interest expense - Consolidated Entities
 
8,420

 
(8,420
)
 
—

 
744

 
(744
)
 
—

Total expenses
 
29,076

 
(8,808
)
 
20,268

 
19,663

 
(2,012
)
 
17,651

Other Gain (Loss)
 
 
 
 
 
 
 
 
 
 
 
 
Net gain (loss) on investments
 
271

 
(271
)
 
—

 
1,193

 
(1,193
)
 
—

Net gain (loss) on contingent liabilities
 
(364
)
 
—

 
(364
)
 
(713
)
 
—

 
(713
)
Net gain (loss) on investments - Consolidated Entities
 
2,600

 
(2,600
)
 
—

 
2,797

 
(2,797
)
 
—

Net gain (loss) on liabilities - Consolidated Entities
 
(7,384
)
 
7,384

 
—

 
(2,260
)
 
2,260

 
—

Net gain (loss) on other investments and derivatives - Consolidated Entities
 
—

 
—

 
—

 
438

 
(438
)
 
—

Net other gain (loss)
 
(4,877
)
 
4,513

 
(364
)
 
1,455

 
(2,168
)
 
(713
)
Income (loss) before income taxes
 
5,785

 
(2
)
 
5,783

 
8,769

 
(254
)
 
8,515

Income tax (expense) benefit
 
(1,278
)
 
—

 
(1,278
)
 
(3,087
)
 
—

 
(3,087
)
Net income (loss)
 
4,507

 
(2
)
 
4,505

 
5,682

 
(254
)
 
5,428

Net (income) loss attributable to noncontrolling interests in Consolidated Entities
 
(2
)
 
2

 
—

 
(254
)
 
254

 
—

Net income (loss) attributable to CIFC LLC
 
$
4,505

 
$
—

 
$
4,505

 
$
5,428

 
$
—

 
$
5,428



    

42

The following table presents the reconciliation from GAAP to Deconsolidated Non-GAAP Balance Sheets as of March 31, 2016 and 2015:

 
 
March 31, 2016
 
December 31, 2015
(In thousands)
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
 
Consolidated GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
ASSETS
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
52,011

 
$
—

 
$
52,011

 
$
57,968

 
$
—

 
$
57,968

Restricted cash and cash equivalents
 
1,694

 
—

 
1,694

 
1,694

 
—

 
1,694

Investments
 
77,347

 
81,823

 
159,170

 
70,696

 
81,752

 
152,448

Receivables
 
8,925

 
55

 
8,980

 
7,075

 
(62
)
 
7,013

Prepaid and other assets
 
2,817

 
463

 
3,280

 
1,973

 
666

 
2,639

Deferred tax asset, net
 
43,110

 
—

 
43,110

 
44,425

 
—

 
44,425

Equipment and improvements, net
 
4,562

 
—

 
4,562

 
4,866

 
—

 
4,866

Intangible assets, net
 
5,393

 
—

 
5,393

 
6,857

 
—

 
6,857

Goodwill
 
76,000

 
—

 
76,000

 
76,000

 
—

 
76,000

Subtotal
 
271,859

 
82,341

 
354,200

 
271,554

 
82,356

 
353,910

Total assets of Consolidated Entities
 
1,456,220

 
(1,456,220
)
 
—

 
1,475,649

 
(1,475,649
)
 
—

TOTAL ASSETS
 
$
1,728,079

 
$
(1,373,879
)
 
$
354,200

 
$
1,747,203

 
$
(1,393,293
)
 
$
353,910

LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
 
Due to brokers
 
$
—

 
$
—

 
$
—

 
$
61

 
$
—

 
$
61

Distribution payable
 
8,670

 
—

 
8,670

 
—

 
—

 
—

Accrued and other liabilities
 
12,451

 
—

 
12,451

 
18,397

 
—

 
18,397

Contingent liabilities
 
8,142

 
—

 
8,142

 
8,338

 
—

 
8,338

Long-term debt
 
156,237

 
—

 
156,237

 
156,161

 
—

 
156,161

Subtotal
 
185,500

 
—

 
185,500

 
182,957

 
—

 
182,957

Total non-recourse liabilities of Consolidated Entities
 
1,366,111

 
(1,366,111
)
 
—

 
1,385,444

 
(1,385,444
)
 
—

TOTAL LIABILITIES
 
1,551,611

 
(1,366,111
)
 
185,500

 
1,568,401

 
(1,385,444
)
 
182,957

EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
Common shares
 
25

 
—

 
25

 
25

 
—

 
25

Treasury shares
 
(435
)
 
—

 
(435
)
 
—

 
—

 
—

Additional paid-in capital
 
994,766

 
—

 
994,766

 
992,419

 
—

 
992,419

Retained earnings (deficit)
 
(825,656
)
 
—

 
(825,656
)
 
(821,491
)
 
—

 
(821,491
)
TOTAL CIFC LLC SHAREHOLDERS’ EQUITY
 
168,700

 
—

 
168,700

 
170,953

 
—

 
170,953

Noncontrolling interests in Consolidated Funds
 
7,768

 
(7,768
)
 
—

 
7,849

 
(7,849
)
 
—

TOTAL EQUITY
 
176,468

 
(7,768
)
 
168,700

 
178,802

 
(7,849
)
 
170,953

TOTAL LIABILITIES AND EQUITY
 
$
1,728,079

 
$
(1,373,879
)
 
$
354,200

 
$
1,747,203

 
$
(1,393,293
)
 
$
353,910



43

Liquidity and Capital Resources
 
Our operating cash flows are composed of revenues from management fees, incentive fees and investment income net of compensation expense, general and administrative expense and income taxes. During the three months ended March 31, 2016, our primary use of cash included $5.1 million of net investments, primarily in CLO equity and debt. As of March 31, 2016, we held total Deconsolidated Non-GAAP cash and investments of $211.2 million composed of cash of $52.0 million and investments of $159.2 million with no debt maturing until October 2025.
During the three months ended March 31, 2016, we also paid down contingent liabilities (related to fee sharing arrangements) of $1.0 million and repurchased shares for $0.4 million.     
The table below is a reconciliation of selected cash flows data for the three months ended March 31, 2016 from GAAP to Non-GAAP:
 
For the Three Months Ended March 31, 2016
(In thousands)
GAAP
 
Consolidation Adjustments
 
Deconsolidated Non-GAAP
Cash and Cash Equivalents, Beginning
$
57,968

 
$
—

 
$
57,968

 
 
 
 
 
 
Net cash provided by/(used in) Operating Activities
(7,237
)
 
7,898

 
661

Net cash provided by/(used in) Investing Activities
6,943

 
(12,092
)
 
(5,149
)
Net cash provided by/(used in) Financing Activities
(5,663
)
 
4,194

 
(1,469
)
    Net change in Cash and Cash Equivalents
(5,957
)
 
—

 
(5,957
)
 
 
 
 
 
 
Cash and Cash Equivalents, End
$
52,011

 
$
—

 
$
52,011


Our investments as of March 31, 2016 and December 31, 2015 are as follows ($ in thousands):
Non-GAAP (1)
 
March 31, 2016
 
December 31, 2015
 
Change
CIFC Managed CLO Equity (Residual Interests)
 
$
63,270

 
$
53,912

 
$
9,358

Fund Coinvestments
 
41,969

 
41,401

 
568

CLO Debt
 
28,739

 
32,140

 
(3,401
)
Other (2)
 
25,192

 
24,946

 
246

Total
 
$
159,170

 
$
152,399

 
$
6,771


Explanatory Notes:
________________________________
(1)
Pursuant to GAAP, investments in consolidated CLOs, warehouses and certain Non-CLO products are eliminated from "Investments" on our Consolidated Balance Sheets.
(2)
Primarily includes investment in CIFC's Tactical Income Fund, which may be redeemed with 60 days' notice on the last day of each calendar quarter.



44

Other Sources and Uses of Funds

Long-Term Debt—The following table summarizes the long-term debt:

 
March 31, 2016
 
December 31, 2015
 
Par
 
Carrying
Value
 
Weighted Average
Borrowing Rate
 
Weighted Average
Remaining Maturity
 
Par
 
Carrying
Value
 

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

 
$
93,476

 
3.20
%
 
19.6
 
$
95,000

 
$
93,456

 
2.90
%
 
19.8
October Junior Subordinated Notes (2)
25,000

 
24,806

 
4.12
%
 
19.6
 
25,000

 
24,803

 
3.82
%
 
19.8
Senior Notes (3)
40,000

 
37,955

 
8.50
%
 
9.6
 
40,000

 
37,902

 
8.50
%
 
9.8
Total Recourse Debt
$
160,000

 
$
156,237

 
4.67
%
 
17.1
 
$
160,000

 
$
156,161

 
4.44
%
 
17.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-Recourse Consolidated Entities' debt:
 
 
 

 
 

 
 
 
 
 
 
 
 
 
 
Consolidated CLOs and Other (4)
$
1,360,725

 
$
1,312,058

 
0.03
%
 
9.0
 
$
1,385,226

 
$
1,308,558

 
0.02
%
 
9.1
     Total Non-recourse Debt
$
1,360,725

 
$
1,312,058

 
0.03
%
 
9.0
 
$
1,385,226

 
$
1,308,558

 
0.02
%
 
9.1

Explanatory Notes:
________________________________
(1)
March Junior Subordinated Notes bear interest at an annual rate of three month LIBOR plus 2.58% until maturity on October 30, 2035. Prior to April 30, 2015, these notes bore interest at an annual rate of 1%.
(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)
The Senior Notes bear interest at 8.5% and mature on October 30, 2025. As of January 1, 2016, the Company temporarily did not meet certain registration requirements under the indenture (and associated agreements) and incurred additional interest of 25 basis points per annum for the period ended March 31, 2016. Each 90 days thereafter interest will increase by 25 basis points (capped at 1% per annum) until cured. The Company has cured these conditions and expects the additional interest to end in July 2016.
(4)
The subordinated notes of the Consolidated CLOs do not have a stated interest rate and have been excluded from the calculation of the weighted average borrowing rate. As of March 31, 2016 and December 31, 2015, long-term debt of the Consolidated CLOs and other includes $151.7 million and $153.1 million of credit fund debt, respectively.

Covenants—Junior Subordinated Notes—The Junior Subordinated Notes contain certain restrictive covenants including a restricted payments covenant that restricts our ability to make distributions in respect of our equity securities, subject to a number of exceptions and conditions. These covenants also limit CIFC Corp.'s ability to make distributions to its related parties, including CIFC LLC.

Covenants—Senior Notes—On November 2, 2015, CIFC Corp. issued $40.0 million in aggregate principal amount of 8.5% unsecured senior notes due October 30, 2025 (the “Senior Notes”) that are guaranteed by CIFC LLC and certain subsidiaries. Under the terms of the related indenture, certain consolidated entities such as consolidated CLOs, Warehouses and Funds ("Investment Vehicles") do not guarantee the notes. Further, the indenture provides that so long as entities holding at least 90% of the Company’s consolidated total assets are guarantors, the Company may designate entities within its corporate structure as non-guarantor entities ("Unrestricted Entities" and together with Investment Vehicles, "Non-Guarantor"). The Senior Notes indenture contains certain restrictive covenants including a restricted payments covenant that restricts the Company's ability to 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 (including the Consolidated CLOs, warehouses and other investment products), 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.

45

Related Party Transactions

    DFR Holdings—As of March 31, 2016 and December 31, 2015, DFR Holdings owned approximately 18.8 million of our shares which was approximately 74% of our outstanding shares and 70% on a fully diluted basis (in each case including the Dissenting Shares ("Part 1. Item 1.   Condensed Consolidated Financial Statements and Notes (Unaudited)—Note 10" and "Subsequent Events" below). Accordingly, DFR Holdings received cash distributions from us (see "Part 1. Item 1.   Condensed Consolidated Financial Statements and Notes (Unaudited)—Note 10"). DFR Holdings also holds warrants which provide DFR Holdings the right to purchase 2.0 million voting common shares. These warrants are scheduled to expire on January 24, 2017.
 
Under the Company's consulting agreement with DFR Holdings, DFR Holdings provides 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 both the three months ended March 31, 2016 and 2015, the Company paid 2.0 million and expensed $0.5 million in connection with the consulting agreement.

In addition, pursuant to the Third Amended and Restated Stockholders Agreement with DFR Holdings dated December 2, 2013, the Company agreed to nominate to the Board 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, 2016 and 2015, the DFR Designees earned an aggregate $0.2 million related to their service as our directors.
Other—As of March 31, 2016 and December 31, 2015, 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—All CIFC general partner investments in credit funds are related party transactions ("Part 1. Item 1.   Condensed Consolidated Financial Statements and Notes (Unaudited)—Note 2"). As of March 31, 2016 and December 31, 2015, key employees and directors of CIFC (including related entities) invested an aggregate of $4.7 million in four CIFC managed funds. Key employees are not charged management or incentive fees, where applicable on their investment. Directors were charged management and/or incentive fees, where applicable, similar to certain other investors. For all periods presented in 2016 and 2015, these fees were de minimis.
Off-Balance Sheet Arrangements
As of March 31, 2016 and December 31, 2015, 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, 2016 and 2015, 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, our Board declared an aggregate cash distribution of $0.25 per share, composed of a $0.10 per share quarterly distribution and a $0.15 per share special distribution. The distribution will be paid on May 24, 2016 to shareholders of record as of the close of business on May 17, 2016.
On April 28, 2016, the Dissenting Shareholders filed an appraisal petition with the Delaware Court. The Dissenting Shareholders may (i) be paid the fair value of the Dissenting Shares as determined by the Delaware Courts or (ii) settle upon terms agreed to by the parties.
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 2015 Annual Report, in Management's Discussion and Analysis of Financial Condition. There have been no significant changes to our critical accounting estimates as of March 31, 2016.


46

Recent Accounting Updates
    
For a discussion of the impact of new accounting pronouncements on our financial condition or results of operations, see "Part 1. Item 1.   Condensed Consolidated Financial Statements and Notes (Unaudited)—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 (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.
    
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 for 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.

47


PART II. Other Information

Item 1.    Legal Proceedings

On April 28, 2016, Joseph A. Jolson, as Trustee on behalf of the Joseph A Jolson 1991 Trust, U/A 6/4/91, and Richard A. Jolson (together, the "Petitioners") filed a petition for appraisal (the "Petition") in the Court of Chancery of the State of Delaware against CIFC Corp. in connection with the Reorganization Transaction.  The case is captioned Jolson, et al. v. CIFC Corp., Civil Action No. 12275-VCMR.  According to the Petition, the Petitioners were the beneficial owners of an aggregate of 2,026,315 shares of CIFC Corp. common stock on the date the Reorganization Transaction was consummated.  The Petitioners have demanded and continue to demand an appraisal of their shares and payment of the fair value thereof under Delaware law, together with interest from the date of the Reorganization Transaction, costs and other appropriate relief.  

In view of the inherent difficulty of predicting the outcome of such litigation, we cannot predict or reasonably estimate what the eventual outcome of the pending matter described above will be, what the timing of the ultimate resolution of this matter will be, or what any loss or range of loss related to the pending matter may be.

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 2015 Annual Report.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
    
The number and average prices of shares repurchased during the three months ended March 31, 2016 are set forth in the table below:
 
 
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as part of
Publicly Announced
Program (1)
 
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
January 1 - January 31, 2016
75,296

 
5.75

 
75,296

 
$
3,780,854

February 1 - February 29, 2016
—

 
—

 
—

 
$
3,780,854

March 1 - March 31, 2016
—

 
—

 
—

 
$
3,780,854

Total
75,296

 
$
5.75

 
75,296

 
 

Explanatory Note:
_________________________________
(1)
On March 29, 2012, we announced that our 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.

The indentures governing our Junior Subordinated Notes and Senior 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

48


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, 2016, 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); (v) the Condensed Consolidated Statements of Cash Flows (unaudited); and (vi) the Notes to Condensed Consolidated Financial Statements (unaudited) furnished herewith.


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


49

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 LLC
 
 
(Registrant)
 
 
 
 
 
 
 
 
Date:
May 9, 2016
By:
/s/ STEPHEN J. VACCARO
 
 
 
Stephen J. Vaccaro, Co-President
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
May 9, 2016
By:
/s/ OLIVER E. WRIEDT
 
 
 
Oliver E. Wriedt, Co-President
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
May 9, 2016
By:
/s/ RAHUL N. AGARWAL
 
 
 
Rahul N. Agarwal, Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)










50

CIFC LLC Reports