Ellington Financial Inc.EFC
Ellington Financial Inc. Fair Value Disclosure
Valuation
The tables below reflect the value of the Company's Level 1, Level 2, and Level 3 financial instruments that are measured at fair value on a recurring basis as of December 31, 2024 and 2023:
December 31, 2024:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Securities, at fair value: | ||||||||||||||||||||||||||
| Agency RMBS | $ | — | $ | 286,057 | $ | 10,660 | $ | 296,717 | ||||||||||||||||||
| Non-Agency RMBS | — | 56,455 | 153,188 | 209,643 | ||||||||||||||||||||||
| CMBS | — | 17,807 | 21,399 | 39,206 | ||||||||||||||||||||||
| CLOs | — | 44,740 | 22,678 | 67,418 | ||||||||||||||||||||||
| Asset-backed securities, backed by consumer loans | — | — | 60,227 | 60,227 | ||||||||||||||||||||||
| Other ABS | — | — | 35,483 | 35,483 | ||||||||||||||||||||||
| Corporate debt securities | — | — | 14,352 | 14,352 | ||||||||||||||||||||||
| Corporate equity securities | 2,926 | — | 9,759 | 12,685 | ||||||||||||||||||||||
| U.S. Treasury securities | — | 226,523 | — | 226,523 | ||||||||||||||||||||||
| Loans, at fair value: | ||||||||||||||||||||||||||
| Residential mortgage loans | — | — | 3,539,534 | 3,539,534 | ||||||||||||||||||||||
| Commercial mortgage loans | — | — | 350,515 | 350,515 | ||||||||||||||||||||||
Consumer loans | — | — | 477 | 477 | ||||||||||||||||||||||
Corporate loans | — | — | 11,767 | 11,767 | ||||||||||||||||||||||
| Reverse mortgage loans | — | — | 10,097,279 | 10,097,279 | ||||||||||||||||||||||
| Forward MSR-related investments, at fair value | — | — | 77,848 | 77,848 | ||||||||||||||||||||||
| MSRs, at fair value | — | — | 29,766 | 29,766 | ||||||||||||||||||||||
| Loan commitments, at fair value | — | — | 6,692 | 6,692 | ||||||||||||||||||||||
| Investment in unconsolidated entities, at fair value | — | — | 220,078 | 220,078 | ||||||||||||||||||||||
| Financial derivatives–assets, at fair value: | ||||||||||||||||||||||||||
| Credit default swaps on asset-backed indices | — | 1,825 | — | 1,825 | ||||||||||||||||||||||
| Credit default swaps on corporate bonds | — | 83 | — | 83 | ||||||||||||||||||||||
| Interest rate swaps | — | 175,450 | — | 175,450 | ||||||||||||||||||||||
| TBAs | — | 2,381 | — | 2,381 | ||||||||||||||||||||||
| Warrants | — | 9 | — | 9 | ||||||||||||||||||||||
| Futures | 900 | — | — | 900 | ||||||||||||||||||||||
| Forwards | — | 320 | — | 320 | ||||||||||||||||||||||
| Options | 3,427 | — | — | 3,427 | ||||||||||||||||||||||
Total assets | $ | 7,253 | $ | 811,650 | $ | 14,661,702 | $ | 15,480,605 | ||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| (continued) | (In thousands) | |||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Securities sold short, at fair value: | ||||||||||||||||||||||||||
| Government debt | $ | — | $ | (293,574) | $ | — | $ | (293,574) | ||||||||||||||||||
| Financial derivatives–liabilities, at fair value: | ||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | — | — | (3) | (3) | ||||||||||||||||||||||
| Credit default swaps on corporate bonds | — | (225) | — | (225) | ||||||||||||||||||||||
| Credit default swaps on corporate bond indices | — | (33,207) | — | (33,207) | ||||||||||||||||||||||
| Interest rate swaps | — | (35,039) | — | (35,039) | ||||||||||||||||||||||
| TBAs | — | (2,417) | — | (2,417) | ||||||||||||||||||||||
| Futures | (130) | — | — | (130) | ||||||||||||||||||||||
| Forwards | — | (3) | — | (3) | ||||||||||||||||||||||
| Loan purchase commitments, at fair value | — | — | (1,602) | (1,602) | ||||||||||||||||||||||
Other secured borrowings, at fair value | — | — | (1,934,309) | (1,934,309) | ||||||||||||||||||||||
| HMBS-related obligations, at fair value | — | — | (9,150,883) | (9,150,883) | ||||||||||||||||||||||
| Unsecured borrowings, at fair value | — | — | (281,912) | (281,912) | ||||||||||||||||||||||
Total liabilities | $ | (130) | $ | (364,465) | $ | (11,368,709) | $ | (11,733,304) | ||||||||||||||||||
December 31, 2023:
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Securities, at fair value: | ||||||||||||||||||||||||||
| Agency RMBS | $ | — | $ | 847,712 | $ | 5,512 | $ | 853,224 | ||||||||||||||||||
| Non-Agency RMBS | — | 150,349 | 155,240 | 305,589 | ||||||||||||||||||||||
| CMBS | — | 31,289 | 14,143 | 45,432 | ||||||||||||||||||||||
| CLOs | — | 17,539 | 20,439 | 37,978 | ||||||||||||||||||||||
| Asset-backed securities, backed by consumer loans | — | — | 74,226 | 74,226 | ||||||||||||||||||||||
| Other ABS | — | — | 7,696 | 7,696 | ||||||||||||||||||||||
| Corporate debt securities | — | — | 8,041 | 8,041 | ||||||||||||||||||||||
| Corporate equity securities | 8,834 | — | 12,294 | 21,128 | ||||||||||||||||||||||
| U.S. Treasury securities | — | 165,063 | — | 165,063 | ||||||||||||||||||||||
| Loans, at fair value: | ||||||||||||||||||||||||||
| Residential mortgage loans | — | — | 3,093,912 | 3,093,912 | ||||||||||||||||||||||
| Commercial mortgage loans | — | — | 266,595 | 266,595 | ||||||||||||||||||||||
Consumer loans | — | — | 1,759 | 1,759 | ||||||||||||||||||||||
Corporate loans | — | — | 5,819 | 5,819 | ||||||||||||||||||||||
| Reverse mortgage loans | — | — | 8,938,551 | 8,938,551 | ||||||||||||||||||||||
| Forward MSR-related investments, at fair value | — | — | 163,336 | 163,336 | ||||||||||||||||||||||
| MSRs, at fair value | — | — | 29,580 | 29,580 | ||||||||||||||||||||||
| Servicing asset, at fair value | — | — | 1,327 | 1,327 | ||||||||||||||||||||||
| Loan commitments, at fair value | — | — | 2,584 | 2,584 | ||||||||||||||||||||||
| Investment in unconsolidated entities, at fair value | — | — | 116,414 | 116,414 | ||||||||||||||||||||||
| Description | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||
| (continued) | (In thousands) | |||||||||||||||||||||||||
| Financial derivatives–assets, at fair value: | ||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | $ | — | $ | — | $ | 8 | $ | 8 | ||||||||||||||||||
| Credit default swaps on asset-backed indices | — | 3,318 | — | 3,318 | ||||||||||||||||||||||
| Credit default swaps on corporate bonds | — | 25 | — | 25 | ||||||||||||||||||||||
| Credit default swaps on corporate bond indices | — | 7,259 | — | 7,259 | ||||||||||||||||||||||
| Interest rate swaps | — | 129,239 | — | 129,239 | ||||||||||||||||||||||
| Total return swaps | — | — | 6 | 6 | ||||||||||||||||||||||
| TBAs | — | 2,182 | — | 2,182 | ||||||||||||||||||||||
| Warrants | — | 1,702 | — | 1,702 | ||||||||||||||||||||||
| Futures | 245 | — | — | 245 | ||||||||||||||||||||||
| Forwards | — | 12 | — | 12 | ||||||||||||||||||||||
Total assets | $ | 9,079 | $ | 1,355,689 | $ | 12,917,482 | $ | 14,282,250 | ||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Securities sold short, at fair value: | ||||||||||||||||||||||||||
Government debt | $ | — | $ | (154,303) | $ | — | $ | (154,303) | ||||||||||||||||||
| Financial derivatives–liabilities, at fair value: | ||||||||||||||||||||||||||
| Credit default swaps on asset-backed indices | — | (32) | — | (32) | ||||||||||||||||||||||
| Credit default swaps on corporate bonds | — | (225) | — | (225) | ||||||||||||||||||||||
| Credit default swaps on corporate bond indices | — | (15,894) | — | (15,894) | ||||||||||||||||||||||
| Interest rate swaps | — | (31,745) | — | (31,745) | ||||||||||||||||||||||
| TBAs | — | (5,820) | — | (5,820) | ||||||||||||||||||||||
| Futures | (7,990) | — | — | (7,990) | ||||||||||||||||||||||
| Forwards | — | (70) | — | (70) | ||||||||||||||||||||||
Other secured borrowings, at fair value | — | — | (1,424,668) | (1,424,668) | ||||||||||||||||||||||
| HMBS-related obligations, at fair value | — | — | (8,423,235) | (8,423,235) | ||||||||||||||||||||||
| Unsecured borrowings, at fair value | — | — | (272,765) | (272,765) | ||||||||||||||||||||||
Total liabilities | $ | (7,990) | $ | (208,089) | $ | (10,120,668) | $ | (10,336,747) | ||||||||||||||||||
The tables below include roll-forwards of the Company's financial instruments for the years ended December 31, 2024, 2023, and 2022 (including the change in fair value), for financial instruments classified by the Company within Level 3 of the valuation hierarchy.
Year Ended December 31, 2024
| (In thousands) | Beginning Balance as of December 31, 2023 | Accreted Discounts / (Amortized Premiums) | Net Realized Gain/ (Loss) | Change in Net Unrealized Gain/(Loss) | Purchases/Payments(1) | Sales/ Issuances(2) | Transfers Into Level 3 | Transfers Out of Level 3 | Ending Balance as of December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS | $ | 5,512 | $ | (994) | $ | 160 | $ | 154 | $ | 5,705 | $ | (2,207) | $ | 2,629 | $ | (299) | $ | 10,660 | |||||||||||||||||||||||||||||||||||
| Non-Agency RMBS | 155,240 | (8,338) | (3,360) | 27,373 | 133,673 | (144,851) | 5,642 | (12,191) | 153,188 | ||||||||||||||||||||||||||||||||||||||||||||
| CMBS | 14,143 | 890 | 294 | (458) | 4,472 | (4,580) | 9,656 | (3,018) | 21,399 | ||||||||||||||||||||||||||||||||||||||||||||
| CLOs | 20,439 | (2,365) | (3,499) | 636 | 60,439 | (54,584) | 5,962 | (4,350) | 22,678 | ||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities backed by consumer loans | 74,226 | (7,313) | (9,208) | 1,219 | 29,421 | (28,118) | — | — | 60,227 | ||||||||||||||||||||||||||||||||||||||||||||
| Other ABS | 7,696 | (167) | — | 6,988 | 25,958 | (4,992) | — | — | 35,483 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 8,041 | — | 350 | (10) | 19,059 | (13,088) | — | — | 14,352 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate equity securities | 12,294 | — | (520) | (280) | 1,294 | (3,029) | — | — | 9,759 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | 3,093,912 | (2,835) | (8,630) | 50,736 | 3,052,211 | (2,645,860) | — | — | 3,539,534 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage loans | 266,595 | 74 | (1,519) | (7,739) | 383,915 | (290,811) | — | — | 350,515 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer loans | 1,759 | (352) | (3) | 33 | 168 | (1,128) | — | — | 477 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate loans | 5,819 | — | (1,811) | 947 | 9,436 | (2,624) | — | — | 11,767 | ||||||||||||||||||||||||||||||||||||||||||||
Reverse mortgage loans(3) | 8,938,551 | — | (64) | 663,930 | 1,771,976 | (1,277,114) | — | — | 10,097,279 | ||||||||||||||||||||||||||||||||||||||||||||
| Forward MSR-related investments, at fair value | 163,336 | 14,542 | — | 5,816 | — | (105,846) | — | — | 77,848 | ||||||||||||||||||||||||||||||||||||||||||||
MSRs, at fair value(3) | 29,580 | — | — | 186 | — | — | — | — | 29,766 | ||||||||||||||||||||||||||||||||||||||||||||
| Servicing asset, at fair value | 1,327 | — | 590 | (1,917) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Loan commitments, at fair value | 2,584 | — | — | 4,108 | — | — | — | — | 6,692 | ||||||||||||||||||||||||||||||||||||||||||||
| Investments in unconsolidated entities, at fair value | 116,414 | — | 12,093 | 20,352 | 325,305 | (254,086) | — | — | 220,078 | ||||||||||||||||||||||||||||||||||||||||||||
| Financial derivatives–assets, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | 8 | — | (3) | (8) | 3 | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total return swaps | 6 | — | 33 | (6) | 6 | (39) | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total assets, at fair value | $ | 12,917,482 | $ | (6,858) | $ | (15,097) | $ | 772,060 | $ | 5,823,041 | $ | (4,832,957) | $ | 23,889 | $ | (19,858) | $ | 14,661,702 | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial derivatives–liabilities, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | $ | — | $ | — | $ | — | $ | (3) | $ | — | $ | — | $ | — | $ | — | $ | (3) | |||||||||||||||||||||||||||||||||||
| Loan purchase commitments, at fair value | — | — | — | (1,602) | — | — | — | — | (1,602) | ||||||||||||||||||||||||||||||||||||||||||||
| Other secured borrowings, at fair value | (1,424,668) | (1,693) | — | (35,452) | 179,353 | (651,849) | — | — | (1,934,309) | ||||||||||||||||||||||||||||||||||||||||||||
| Unsecured borrowings, at fair value | (272,765) | — | — | (9,147) | — | — | — | — | (281,912) | ||||||||||||||||||||||||||||||||||||||||||||
| HMBS-related obligations, at fair value | (8,423,235) | — | — | (545,673) | 1,266,110 | (1,448,085) | — | — | (9,150,883) | ||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities, at fair value | $ | (10,120,668) | $ | (1,693) | $ | — | $ | (591,877) | $ | 1,445,463 | $ | (2,099,934) | $ | — | $ | — | $ | (11,368,709) | |||||||||||||||||||||||||||||||||||
(1)For Investments in unconsolidated entities, at fair value, amount represents contributions to investments in unconsolidated entities.
(2)For Investments in unconsolidated entities, at fair value and Forward MSR-related investments, at fair value, amount represents distributions received.
(3)Change in net unrealized gain (loss) represents the net change in fair value which can include interest income and realized and unrealized gains and losses.
All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2024, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2024. The following table details the change in net unrealized gain (loss) for Level 3 financial instruments still held by the Company at December 31, 2024.
| (In thousands) | Year Ended December 31, 2024 | |||||||
| Securities, at fair value | $ | 15,267 | ||||||
| Loans, at fair value | 675,154 | |||||||
| Forward MSR-related investments, at fair value | 5,817 | |||||||
| MSRs, at fair value | 187 | |||||||
| Loan purchase commitments, at fair value | (1,602) | |||||||
| Loan commitments, at fair value | 6,692 | |||||||
Investments in unconsolidated entities, at fair value | (3,497) | |||||||
| Financial derivatives–liabilities, at fair value | (10) | |||||||
Other secured borrowings, at fair value | (35,452) | |||||||
Unsecured borrowings, at fair value | (9,147) | |||||||
HMBS-related obligations, at fair value | (545,673) | |||||||
At December 31, 2024, the Company transferred $19.9 million of assets from Level 3 to Level 2 and $23.9 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.
Year Ended December 31, 2023
| (In thousands) | Beginning Balance as of December 31, 2022 | Accreted Discounts / (Amortized Premiums) | Net Realized Gain/ (Loss) | Change in Net Unrealized Gain/(Loss) | Purchases/Payments(1) | Sales/Issuances(2) | Transfers Into Level 3 | Transfers Out of Level 3 | Ending Balance as of December 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS | $ | 7,027 | $ | (1,302) | $ | (650) | $ | 790 | $ | 2,877 | $ | (2,490) | $ | 1,262 | $ | (2,002) | $ | 5,512 | |||||||||||||||||||||||||||||||||||
| Non-Agency RMBS | 132,502 | (140) | 972 | (7,677) | 42,965 | (41,378) | 39,295 | (11,299) | 155,240 | ||||||||||||||||||||||||||||||||||||||||||||
| CMBS | 12,649 | 350 | 23 | (3,589) | 3,441 | (459) | 3,829 | (2,101) | 14,143 | ||||||||||||||||||||||||||||||||||||||||||||
| CLOs | 24,598 | (394) | (8,000) | 5,929 | 18,597 | (12,047) | 5,443 | (13,687) | 20,439 | ||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities backed by consumer loans | 73,644 | (6,134) | (19,547) | 3,754 | 58,212 | (35,703) | — | — | 74,226 | ||||||||||||||||||||||||||||||||||||||||||||
| Other ABS | — | 40 | 829 | 236 | 7,552 | (961) | — | — | 7,696 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 7,533 | — | (509) | 290 | 15,639 | (14,912) | — | — | 8,041 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate equity securities | 11,111 | — | 1,071 | (1,084) | 6,919 | (5,723) | — | — | 12,294 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | 3,115,518 | (8,336) | (14,423) | 82,245 | 1,545,037 | (1,626,129) | — | — | 3,093,912 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage loans | 404,324 | — | 2 | (1,666) | 149,575 | (285,640) | — | — | 266,595 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer loans | 4,843 | (805) | (374) | 102 | 678 | (2,685) | — | — | 1,759 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate loans | 4,086 | — | 354 | (515) | 4,330 | (2,436) | — | — | 5,819 | ||||||||||||||||||||||||||||||||||||||||||||
Reverse mortgage loans(3) | 8,097,237 | — | (30) | 539,872 | 1,819,452 | (1,517,980) | — | — | 8,938,551 | ||||||||||||||||||||||||||||||||||||||||||||
| Forward MSR-related investments, at fair value | — | 703 | — | (1,288) | 177,421 | (13,500) | — | — | 163,336 | ||||||||||||||||||||||||||||||||||||||||||||
MSRs, at fair value(3) | 8,108 | — | — | 21,472 | — | — | — | — | 29,580 | ||||||||||||||||||||||||||||||||||||||||||||
| Servicing asset, at fair value | 999 | — | — | 328 | — | — | — | — | 1,327 | ||||||||||||||||||||||||||||||||||||||||||||
| Loan commitments, at fair value | 3,060 | — | — | (476) | — | — | — | — | 2,584 | ||||||||||||||||||||||||||||||||||||||||||||
| Investments in unconsolidated entities, at fair value | 127,046 | — | (1,320) | 465 | 143,081 | (152,858) | — | — | 116,414 | ||||||||||||||||||||||||||||||||||||||||||||
| Financial derivatives–assets, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | 76 | — | (664) | 596 | 19 | (19) | — | — | 8 | ||||||||||||||||||||||||||||||||||||||||||||
| Total return swaps | — | — | 61 | 6 | — | (61) | — | — | 6 | ||||||||||||||||||||||||||||||||||||||||||||
| Total assets, at fair value | $ | 12,034,361 | $ | (16,018) | $ | (42,205) | $ | 639,790 | $ | 3,995,795 | $ | (3,714,981) | $ | 49,829 | $ | (29,089) | $ | 12,917,482 | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other secured borrowings, at fair value | (1,539,881) | (1,088) | — | (51,554) | 167,855 | — | — | — | (1,424,668) | ||||||||||||||||||||||||||||||||||||||||||||
| Unsecured borrowings, at fair value | (191,835) | — | — | 146 | — | (81,076) | — | — | (272,765) | ||||||||||||||||||||||||||||||||||||||||||||
| HMBS-related obligations, at fair value | (7,787,155) | — | — | (451,598) | 1,276,496 | (1,460,978) | — | — | (8,423,235) | ||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities, at fair value | $ | (9,518,871) | $ | (1,088) | $ | — | $ | (503,006) | $ | 1,444,351 | $ | (1,542,054) | $ | — | $ | — | $ | (10,120,668) | |||||||||||||||||||||||||||||||||||
(1)For Investments in unconsolidated entities, at fair value, amount represents contributions to investments in unconsolidated entities.
(2)For Investments in unconsolidated entities, at fair value, amount represents distributions received.
(3)Change in net unrealized gain (loss) represents the net change in fair value which can include interest income and realized and unrealized gains and losses.
All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2023, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2023. The following table details the change in net unrealized gain (loss) for Level 3 financial instruments still held by the Company at December 31, 2023.
| (In thousands) | Year Ended December 31, 2023 | |||||||
| Securities, at fair value | $ | (2,420) | ||||||
| Loans, at fair value | 622,979 | |||||||
| Forward MSR-related investments, at fair value | (1,288) | |||||||
| MSRs, at fair value | 21,472 | |||||||
| Servicing asset, at fair value | 328 | |||||||
| Loan commitments, at fair value | (476) | |||||||
Investments in unconsolidated entities, at fair value | (3,994) | |||||||
| Financial derivatives–assets, at fair value | 6 | |||||||
Other secured borrowings, at fair value | (51,554) | |||||||
Unsecured borrowings, at fair value | 146 | |||||||
HMBS-related obligations, at fair value | (451,598) | |||||||
At December 31, 2023, the Company transferred $29.1 million of assets from Level 3 to Level 2 and $49.8 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.
Year Ended December 31, 2022
| (In thousands) | Beginning Balance as of December 31, 2021 | Accreted Discounts / (Amortized Premiums) | Net Realized Gain/ (Loss) | Change in Net Unrealized Gain/(Loss) | Purchases/Payments(1) | Sales/Issuances(2) | Transfers Into Level 3 | Transfers Out of Level 3 | Ending Balance as of December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Securities, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Agency RMBS | $ | 9,710 | $ | (1,963) | $ | (130) | $ | (1,169) | $ | 3,132 | $ | (1,442) | $ | 3,024 | $ | (4,135) | $ | 7,027 | |||||||||||||||||||||||||||||||||||
| Non-Agency RMBS | 134,888 | 993 | 37 | (13,934) | 77,994 | (35,522) | 13,235 | (45,189) | 132,502 | ||||||||||||||||||||||||||||||||||||||||||||
| CMBS | 13,134 | 120 | 3,050 | (2,807) | 620 | (5,297) | 3,829 | — | 12,649 | ||||||||||||||||||||||||||||||||||||||||||||
| CLOs | 26,678 | (1,884) | 6,245 | (2,825) | — | (13,628) | 15,178 | (5,166) | 24,598 | ||||||||||||||||||||||||||||||||||||||||||||
| Asset-backed securities backed by consumer loans | 73,108 | (5,865) | (36) | (11,771) | 62,348 | (44,140) | — | — | 73,644 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 5,198 | — | 1,362 | (1,514) | 13,577 | (11,090) | — | — | 7,533 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate equity securities | 7,556 | — | 880 | (456) | 5,768 | (2,637) | — | — | 11,111 | ||||||||||||||||||||||||||||||||||||||||||||
| Loans, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Residential mortgage loans | 2,016,228 | (13,607) | (18,124) | (335,384) | 2,754,030 | (1,287,625) | — | — | 3,115,518 | ||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage loans | 326,197 | — | 22 | (2,156) | 428,568 | (348,307) | — | — | 404,324 | ||||||||||||||||||||||||||||||||||||||||||||
| Consumer loans | 62,365 | (3,070) | (2,145) | 427 | 11,948 | (64,682) | — | — | 4,843 | ||||||||||||||||||||||||||||||||||||||||||||
| Corporate loans | 10,531 | — | (1,000) | (46) | 3,040 | (8,439) | — | — | 4,086 | ||||||||||||||||||||||||||||||||||||||||||||
Reverse mortgage loans(3) | — | — | (197) | 200,741 | 8,143,368 | (246,675) | — | — | 8,097,237 | ||||||||||||||||||||||||||||||||||||||||||||
MSRs, at fair value(3) | — | — | — | (66) | 8,174 | — | — | — | 8,108 | ||||||||||||||||||||||||||||||||||||||||||||
| Servicing asset, at fair value | — | — | — | 35 | 964 | — | — | — | 999 | ||||||||||||||||||||||||||||||||||||||||||||
| Loan commitments, at fair value | — | — | — | (30) | 3,090 | — | — | — | 3,060 | ||||||||||||||||||||||||||||||||||||||||||||
| Investments in unconsolidated entities, at fair value | 195,643 | — | 14,712 | (78,326) | 257,731 | (262,714) | — | — | 127,046 | ||||||||||||||||||||||||||||||||||||||||||||
| Financial derivatives–assets, at fair value: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | 303 | — | (855) | 615 | 13 | — | — | — | 76 | ||||||||||||||||||||||||||||||||||||||||||||
| Total assets, at fair value | $ | 2,881,539 | $ | (25,276) | $ | 3,821 | $ | (248,666) | $ | 11,774,365 | $ | (2,332,198) | $ | 35,266 | $ | (54,490) | $ | 12,034,361 | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other secured borrowings, at fair value | (984,168) | (802) | — | 258,140 | 312,359 | (1,125,410) | — | — | (1,539,881) | ||||||||||||||||||||||||||||||||||||||||||||
| Unsecured borrowings, at fair value | — | — | — | 18,165 | — | (210,000) | — | — | (191,835) | ||||||||||||||||||||||||||||||||||||||||||||
| HMBS-related obligations, at fair value | — | — | — | (162,381) | 248,453 | (7,873,227) | — | — | (7,787,155) | ||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities, at fair value | $ | (984,168) | $ | (802) | $ | — | $ | 113,924 | $ | 560,812 | $ | (9,208,637) | $ | — | $ | — | $ | (9,518,871) | |||||||||||||||||||||||||||||||||||
(1)For Investments in unconsolidated entities, at fair value, amount represents contributions to investments in unconsolidated entities.
(2)For Investments in unconsolidated entities, at fair value, amount represents distributions received.
(3)Change in net unrealized gain (loss) represents the net change in fair value which can include interest income and realized and unrealized gains and losses.
All amounts of net realized and change in net unrealized gain (loss) in the table above are reflected in the accompanying Consolidated Statement of Operations. The table above incorporates changes in net unrealized gain (loss) for both Level 3 financial instruments held by the Company at December 31, 2022, as well as Level 3 financial instruments disposed of by the Company during the year ended December 31, 2022. The following table details the change in net unrealized gain (loss) for Level 3 financial instruments still held by the Company at December 31, 2022.
| (In thousands) | Year Ended December 31, 2022 | |||||||
| Securities, at fair value | $ | (38,274) | ||||||
| Loans, at fair value | (136,099) | |||||||
| MSRs, at fair value | (66) | |||||||
| Servicing asset, at fair value | 35 | |||||||
| Loan commitments, at fair value | (30) | |||||||
Investments in unconsolidated entities, at fair value | (36,107) | |||||||
| Financial derivatives–assets, at fair value | 615 | |||||||
Other secured borrowings, at fair value | 258,140 | |||||||
Unsecured borrowings, at fair value | 18,165 | |||||||
HMBS-related obligations, at fair value | (162,381) | |||||||
At December 31, 2022, the Company transferred $54.5 million of assets from Level 3 to Level 2 and $35.3 million from Level 2 to Level 3. Transfers between these hierarchy levels were based on the availability of sufficient observable inputs to meet Level 2 versus Level 3 criteria. The leveling of each financial instrument is reassessed at the end of each period, and is based on pricing information received from third-party pricing sources.
The following table summarizes the estimated fair value of all other financial instruments not measured at fair value on a recurring basis as of December 31, 2024 and 2023:
| December 31, 2024 | December 31, 2023 | |||||||||||||||||||||||||
| (In thousands) | Fair Value | Carrying Value | Fair Value | Carrying Value | ||||||||||||||||||||||
| Other financial instruments | ||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 192,387 | $ | 192,387 | $ | 228,927 | $ | 228,927 | ||||||||||||||||||
| Restricted cash | 16,561 | 16,561 | 1,618 | 1,618 | ||||||||||||||||||||||
| Due from brokers | 22,186 | 22,186 | 51,884 | 51,884 | ||||||||||||||||||||||
| Reverse repurchase agreements | 336,743 | 336,743 | 173,145 | 173,145 | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||
| Repurchase agreements | 2,584,040 | 2,584,040 | 2,967,437 | 2,967,437 | ||||||||||||||||||||||
| Other secured borrowings | 253,300 | 253,300 | 245,827 | 245,827 | ||||||||||||||||||||||
| Due to brokers | 55,429 | 55,429 | 62,442 | 62,442 | ||||||||||||||||||||||
Cash and cash equivalents generally includes cash held in interest bearing overnight accounts, for which fair value equals the carrying value, and investments which are liquid in nature, such as investments in money market accounts or U.S. Treasury Bills, for which fair value equals the carrying value; such assets are considered Level 1. Restricted cash includes cash held in a segregated account for which fair value equals the carrying value; such assets are considered Level 1. Due from brokers and Due to brokers include collateral transferred to or received from counterparties, along with receivables and payables for open and/or closed derivative positions. These receivables and payables are short term in nature and any collateral transferred consists primarily of cash; fair value of these items is approximated by carrying value and such items are considered Level 1. The Company's reverse repurchase agreements, repurchase agreements, and other secured borrowings are carried at cost, which approximates fair value due to their short term nature. Reverse repurchase agreements, repurchase agreements, and other secured borrowings are classified as Level 2 based on the adequacy of the collateral and their short term nature.
The following table identifies the significant unobservable inputs that affect the valuation of the Company's Level 3 assets and liabilities as of December 31, 2024:
December 31, 2024:
| Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||||||||||||||||||||||||||
| Description | Min | Max | ||||||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
Non-Agency RMBS | $ | 75,825 | Market Quotes | Non Binding Third-Party Valuation | $ | 4.92 | $ | 137.46 | $ | 68.79 | ||||||||||||||||||||||||||||
| 77,363 | Discounted Cash Flows | |||||||||||||||||||||||||||||||||||||
| 153,188 | Yield | 0.0 | % | 123.5 | % | 12.5 | % | |||||||||||||||||||||||||||||||
| Projected Collateral Prepayments | 0.0 | % | 100.0 | % | 63.9 | % | ||||||||||||||||||||||||||||||||
| Projected Collateral Losses | 0.0 | % | 56.9 | % | 2.9 | % | ||||||||||||||||||||||||||||||||
| Projected Collateral Recoveries | 0.0 | % | 19.2 | % | 2.1 | % | ||||||||||||||||||||||||||||||||
| Non-Agency CMBS | 21,385 | Market Quotes | Non Binding Third-Party Valuation | $ | 2.20 | $ | 95.57 | $ | 58.96 | |||||||||||||||||||||||||||||
| 14 | Discounted Cash Flows | |||||||||||||||||||||||||||||||||||||
| 21,399 | Yield | 6.0 | % | 25.6 | % | 11.4 | % | |||||||||||||||||||||||||||||||
| Projected Collateral Losses | 0.0 | % | 80.0 | % | 5.9 | % | ||||||||||||||||||||||||||||||||
| Projected Collateral Recoveries | 1.6 | % | 100.0 | % | 89.8 | % | ||||||||||||||||||||||||||||||||
CLOs | 16,187 | Market Quotes | Non Binding Third-Party Valuation | $ | 7.81 | $ | 94.18 | $ | 64.95 | |||||||||||||||||||||||||||||
| 6,491 | Discounted Cash Flows | |||||||||||||||||||||||||||||||||||||
| 22,678 | Yield | 6.1 | % | 114.3 | % | 17.6 | % | |||||||||||||||||||||||||||||||
Agency interest only RMBS | 4,231 | Market Quotes | Non Binding Third-Party Valuation | $ | 4.83 | $ | 19.75 | $ | 7.65 | |||||||||||||||||||||||||||||
| 6,429 | Option Adjusted Spread ("OAS") | |||||||||||||||||||||||||||||||||||||
| 10,660 | LIBOR OAS(1) | 96 | 3,287 | 423 | ||||||||||||||||||||||||||||||||||
| Projected Collateral Prepayments | 0.0 | % | 82.7 | % | 46.5 | % | ||||||||||||||||||||||||||||||||
| ABS | 23,530 | Market Quotes | Non Binding Third-Party Valuation | $ | 4.88 | $ | 99.48 | $ | 83.94 | |||||||||||||||||||||||||||||
| 72,180 | Discounted Cash Flows | |||||||||||||||||||||||||||||||||||||
| 95,710 | Yield | 5.7 | % | 28.7 | % | 11.6 | % | |||||||||||||||||||||||||||||||
| Projected Collateral Prepayments | 0.0 | % | 83.0 | % | 19.3 | % | ||||||||||||||||||||||||||||||||
| Projected Collateral Losses | 0.0 | % | 57.4 | % | 21.7 | % | ||||||||||||||||||||||||||||||||
Corporate debt and equity | 24,111 | Discounted Cash Flows | Yield | 0.0 | % | 106.4 | % | 16.0 | % | |||||||||||||||||||||||||||||
Performing and re-performing residential mortgage loans | 1,889,009 | Discounted Cash Flows | Yield | 0.4 | % | 28.8 | % | 8.2 | % | |||||||||||||||||||||||||||||
Securitized residential mortgage loans(2)(3) | 1,352,094 | Market Quotes | Non Binding Third-Party Valuation | $ | 0.69 | $ | 100.49 | $ | 87.44 | |||||||||||||||||||||||||||||
| 136,338 | Discounted Cash Flows | |||||||||||||||||||||||||||||||||||||
| 1,488,432 | Yield | 0.8 | % | 15.3 | % | 6.8 | % | |||||||||||||||||||||||||||||||
Non-performing residential mortgage loans | 162,093 | Discounted Cash Flows | Yield | 0.0 | % | 99.6 | % | 13.7 | % | |||||||||||||||||||||||||||||
| Recovery Amount | 0.7 | % | 249.0 | % | 104.0 | % | ||||||||||||||||||||||||||||||||
| Months to Resolution | 5.6 | 108.5 | 20.6 | |||||||||||||||||||||||||||||||||||
| Performing commercial mortgage loans | 312,956 | Discounted Cash Flows | Yield | 8.9 | % | 14.6 | % | 10.5 | % | |||||||||||||||||||||||||||||
Non-performing commercial mortgage loans | 37,559 | Discounted Cash Flows | Yield | 11.2 | % | 14.1 | % | 12.9 | % | |||||||||||||||||||||||||||||
| Recovery Amount | 32.5 | % | 100.0 | % | 86.3 | % | ||||||||||||||||||||||||||||||||
| Months to Resolution | 1.1 | 5.9 | 3.9 | |||||||||||||||||||||||||||||||||||
| Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||||||||||||||||||||||||||
| Description | Min | Max | ||||||||||||||||||||||||||||||||||||
| (continued) | (In thousands) | |||||||||||||||||||||||||||||||||||||
Consumer loans | 477 | Discounted Cash Flows | Yield | 8.8 | % | 12.1 | % | 11.3 | % | |||||||||||||||||||||||||||||
| Projected Collateral Prepayments | — | % | 31.0 | % | 11.3 | % | ||||||||||||||||||||||||||||||||
| Projected Collateral Losses | 0.3 | % | 84.1 | % | 22.2 | % | ||||||||||||||||||||||||||||||||
Corporate loans | 11,767 | Discounted Cash Flows | Yield | 6.9 | % | 21.4 | % | 11.2 | % | |||||||||||||||||||||||||||||
| Reverse Mortgage Loans—HECM | 9,364,365 | Discounted Cash Flows | Yield | 2.8 | % | 6.8 | % | 4.8 | % | |||||||||||||||||||||||||||||
| Conditional Prepayment Rate | 1.6 | % | 37.1 | % | 7.5 | % | ||||||||||||||||||||||||||||||||
| Reverse Mortgage Loans—HECM buyouts | 18,913 | Discounted Cash Flows | Yield | 7.7 | % | 11.4 | % | 9.8 | % | |||||||||||||||||||||||||||||
| Months to Resolution | 0.3 | 60.0 | 22.7 | |||||||||||||||||||||||||||||||||||
| Reverse Mortgage Loans—Unsecuritized Proprietary | 107,249 | Discounted Cash Flows | Yield | 7.1 | % | 8.5 | % | 7.7 | % | |||||||||||||||||||||||||||||
| Conditional Prepayment Rate | 12.0 | % | 44.4 | % | 14.5 | % | ||||||||||||||||||||||||||||||||
Reverse Mortgage Loans—Securitized Proprietary(2) | 606,752 | Market Quotes | Non Binding Third-Party Valuation | $ | 89.60 | $ | 110.37 | $ | 107.15 | |||||||||||||||||||||||||||||
| Yield | 6.1 | % | 8.9 | % | 6.4 | % | ||||||||||||||||||||||||||||||||
| Forward MSR-related investments | 77,848 | Discounted Cash Flows | Yield | 9.9 | % | 9.9 | % | 9.9 | % | |||||||||||||||||||||||||||||
| Conditional Prepayment Rate | 5.8 | % | 5.8 | % | 5.8 | % | ||||||||||||||||||||||||||||||||
| MSRs | 29,766 | Discounted Cash Flows | Yield | 17.4 | % | 17.4 | % | 17.4 | % | |||||||||||||||||||||||||||||
| Conditional Prepayment Rate | 10.2 | % | 57.0 | % | 15.1 | % | ||||||||||||||||||||||||||||||||
| Loan Purchase Commitments | (1,602) | Transaction Price | Yield | 7.2 | % | 7.4 | % | 7.3 | % | |||||||||||||||||||||||||||||
| Loan Commitments | 6,692 | Discounted Cash Flows | Pull-through rate | 60.0 | % | 99.3 | % | 70.2 | % | |||||||||||||||||||||||||||||
| Cost to originate | 3.2 | % | 8.1 | % | 4.9 | % | ||||||||||||||||||||||||||||||||
| Investment in unconsolidated entities—Loan origination and mortgage-related entities | 49,294 | Enterprise Value | Equity Price-to-Book(4) | 0.5x | 1.7x | 1.6x | ||||||||||||||||||||||||||||||||
| Investment in unconsolidated entities—Other | 168,284 | Enterprise Value | Net Asset Value | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||
| Investment in unconsolidated entities—Loan origination-related entities | 2,500 | Recent Transactions | Transaction Price | n/a | n/a | n/a | ||||||||||||||||||||||||||||||||
| 220,078 | ||||||||||||||||||||||||||||||||||||||
| Credit default swaps on asset-backed securities | (3) | Net Discounted Cash Flows | Projected Collateral Prepayments | 22.9 | % | 22.9 | % | 22.9 | % | |||||||||||||||||||||||||||||
| Projected Collateral Losses | 8.6 | % | 8.6 | % | 8.6 | % | ||||||||||||||||||||||||||||||||
| Projected Collateral Recoveries | 12.3 | % | 12.3 | % | 12.3 | % | ||||||||||||||||||||||||||||||||
Other secured borrowings, at fair value(2) | (1,934,309) | Market Quotes | Non Binding Third-Party Valuation | $ | 50.00 | $ | 100.49 | $ | 89.23 | |||||||||||||||||||||||||||||
| Yield | 5.7% | 9.9% | 6.2% | |||||||||||||||||||||||||||||||||||
| Projected Collateral Prepayments | 9.5% | 100.0% | 87.6% | |||||||||||||||||||||||||||||||||||
| HMBS-related obligations, at fair value | (9,150,883) | Discounted Cash Flows | Yield | 2.6% | 6.7% | 4.7% | ||||||||||||||||||||||||||||||||
| Conditional Prepayment Rate | 6.6% | 37.1% | 7.5% | |||||||||||||||||||||||||||||||||||
| Unsecured borrowings, at fair value | (281,912) | Market Quotes | Non Binding Third-Party Valuation | $ | 78.50 | $ | 99.34 | $ | 94.82 | |||||||||||||||||||||||||||||
(1)Shown in basis points.
(2)Securitized residential mortgage loans, Reverse Mortgage Loans—Securitized Proprietary, and Other secured borrowings, at fair value, represent financial assets and liabilities of the Company's CFEs as discussed in Note 2.
(3)Includes $53.4 million of non-performing securitized residential mortgage loans.
(4)Represents an estimation of where market participants might value an enterprise on a price-to-book basis. For the range minimum, the range maximum, and the weighted average price-to-book ratio, excludes investments in unconsolidated entities with a total fair value of $0.5 million. Including such investments the weighted average price-to-book ratio was 1.7x.
Third-party non-binding valuations are validated by comparing such valuations to internally generated prices based on the Company's or third-party models and, when available, to recent trading activity in the same or similar instruments.
For those instruments valued using discounted and net discounted cash flows, collateral prepayments, losses, recoveries, and scheduled amortization are projected over the remaining life of the collateral and expressed as a percentage of the collateral's current principal balance. Averages are weighted based on the fair value of the related instrument. In the case of credit default swaps on asset-backed securities, averages are weighted based on each instrument's bond equivalent value. Bond equivalent value represents the investment amount of a corresponding position in the reference obligation, calculated as the difference between the outstanding principal balance of the underlying reference obligation and the fair value, inclusive of accrued interest, of the derivative contract. For those assets valued using the LIBOR Option Adjusted Spread ("LIBOR OAS") valuation methodology, cash flows are projected using the Company's models over multiple interest rate scenarios, and these projected cash flows are then discounted using the LIBOR rates (which are calculated by using an assumed spread over projected SOFR rates) implied by each interest rate scenario. The LIBOR OAS of an asset is then computed as the unique constant yield spread that, when added to all LIBOR rates in each interest rate scenario generated by the model, will equate (a) the expected present value of the projected asset cash flows over all model scenarios to (b) the actual current market price of the asset. LIBOR OAS is therefore model-dependent. Generally speaking, LIBOR OAS measures the additional yield spread over LIBOR that an asset provides at its current market price after taking into account any interest rate options embedded in the asset. The Company considers the expected timeline to resolution in the determination of fair value for its non-performing commercial and residential mortgage loans.
Material changes in any of the inputs above in isolation could result in a significant change to reported fair value measurements. Additionally, fair value measurements are impacted by the interrelationships of these inputs. For example, for instruments subject to prepayments and credit losses, such as non-Agency RMBS and consumer loans and ABS backed by consumer loans, a higher expectation of collateral prepayments will generally be accompanied by a lower expectation of collateral losses. Conversely, higher losses will generally be accompanied by lower prepayments. Because the Company's credit default swaps on asset-backed security holdings represent credit default swap contracts whereby the Company has purchased credit protection, such credit default swaps on asset-backed securities generally have the directionally opposite sensitivity to prepayments, losses, and recoveries as compared to the Company's long securities holdings. Prepayments do not represent a significant input for the Company's commercial mortgage-backed securities and commercial mortgage loans. Losses and recoveries do not represent a significant input for the Company's Agency RMBS interest only securities, given the guarantee of the issuing government agency or government-sponsored enterprise.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.