Voya 2014 Annual Report Download - page 386

Voya Financial, Inc.
Notes to the Consolidated Financial Statements
(Dollar amounts in millions, unless otherwise stated)
CLO notes: The CLO notes are backed by a diversified loan portfolio consisting primarily of senior secured
floating rate leveraged loans. Repayment risk is segmented into tranches with credit ratings of these tranches
reflecting both the credit quality of underlying collateral as well as how much protection a given tranche is
afforded by tranches that are subordinate to it. The most subordinated tranche bears the first loss and receives the
residual payments, if any. The interest rates are generally variable rates based on LIBOR plus a pre-defined
spread, which varies from 0.22% for the more senior tranches to 7.00% for the more subordinated tranches. CLO
notes mature at various dates between 2020 and 2026 and have a weighted average maturity of 9.2 years. The
outstanding balance on the notes issued by consolidated CLOs exceeds their fair value by approximately $239.6
and $139.6 as of December 31, 2014 and 2013, respectively. The investors in this debt are not affiliated with the
Company and have no recourse to the general credit of the Company for this debt.
The fair values of the CLO notes including subordinated tranches in which the Company retains an ownership
interest are obtained from a third-party commercial pricing service. The service combines the modeling of
projected cash flow activity and the calibration of modeled results with transactions that have taken place in the
specific debt issue as well as debt issues with similar characteristics. Several of the more significant inputs to the
models including default rate, recovery rate, prepayment rate and discount margin, are determined primarily
based on the nature of the investments in the underlying collateral pools and cannot be corroborated by
observable market data. Accordingly, CLO notes are classified within Level 3 of the fair value hierarchy.
The Company reviews the detailed prices, including comparisons to prior periods, for reasonableness. The
Company utilizes a formal pricing challenge process to request a review of any price during which time the
vendor examines its assumptions and relevant market inputs to determine if a price change is warranted.
The following table summarizes significant unobservable inputs for Level 3 fair value measurements as of the
dates indicated:
Fair Value Valuation Technique Unobservable Inputs
December 31, 2014
Assets:
CLO Investments ............................. $ 19.2 Discounted Cash Flow Default Rate
Recovery Rate
Prepayment Rate
Discount Margin
Liabilities:
CLO Notes .................................. $6,838.1 Discounted Cash Flow Default Rate
Recovery Rate
Prepayment Rate
Discount Margin
Fair Value Valuation Technique Unobservable Inputs
December 31, 2013
Assets:
CLO Investments ............................. $ 25.5 Discounted Cash Flow Default Rate
Recovery Rate
Prepayment Rate
Discount Margin
Liabilities:
CLO Notes .................................. $5,161.6 Discounted Cash Flow Default Rate
Recovery Rate
Prepayment Rate
Discount Margin
363