DFR Cifc Corp. (MM)

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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 June 30, 2011

OR

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number: 1-32551

CIFC CORP.

(Exact name of registrant as specified in its charter)

250 Park Avenue, 5 th  Floor, New York, NY 10177

(212) 624-1200

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o No  x

There were 20,255,430 shares of the registrant’s Common Stock outstanding as of August 11, 2011.

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CIFC CORP.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

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CERTAIN DEFINITIONS

Unless otherwise noted or the context otherwise requires, we refer to CIFC Corp. (formerly known as CIFC Deerfield Corp. and previously as Deerfield Capital Corp.) as “CIFC,” to CIFC and its subsidiaries as “we,” “us,” “our,” “our company” or the “Company,” to CIFC Asset Management LLC, one of our wholly-owned subsidiaries, as “CIFCAM,” to Deerfield Capital Management LLC, one of our indirect wholly-owned subsidiaries, as “DCM,” to CypressTree Investment Management, LLC, one of our indirect wholly-owned subsidiaries, as “CypressTree” and to Columbus Nova Credit Investments Management, LLC, one of our indirect wholly-owned subsidiaries, as “CNCIM.”

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this quarterly report on Form 10-Q, (the “Quarterly Report”), and the information incorporated by reference into this Quarterly Report are forward-looking statements, as permitted by the Private Securities Litigation Reform Act of 1995. These include 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 as a result of the following factors, among others:

·                   reductions in assets under management and related investment management and incentive fee revenue;

·                   our ability to attract and retain qualified personnel;

·                   competitive conditions impacting us and the assets we manage;

·                   our ability to complete future collateralized loan obligation (“CLO”) transactions,  including our ability to effectively finance such transactions through warehouse facilities and our ability to assume or otherwise acquire additional CLO management contracts on favorable terms, or at all;

·                   our ability to accumulate sufficient qualified loans in our warehouse facilities and our exposure to market price risk and credit risk of the loan assets held in such warehouse facilities;

·                   the current economic environment in the United States; disruptions to the credit and financial markets in the United States and globally; the impact of the downgrade of the United States credit rating; and contractions or limited growth as a result of uncertainty in the United States economy;

·                   our ability to maintain our exemption from registration as an investment company pursuant to the Investment Company Act of 1940;

·                   the ability of Bounty Investments, LLC and CIFC Parent Holdings, LLC to exercise substantial control over our business;

·                   the outcome of legal or regulatory proceedings to which we are or may become a party;

·                   our ability to make investments in new investment products, realize fee-based income under our investment management agreements, grow our fee-based income and deliver strong investment performance;

·                   our failure to realize the expected benefits of the merger with CIFCAM and the acquisition of CNCIM; and

·                   other risks described in Part I—Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2010 and Part II - Item 1A Risk Factors in this Quarterly Report, and from time to time in our other filings with the Securities and Exchange Commission.

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 generally our policy to not make any specific projections as to future earnings, nor do we endorse any projections regarding future performance that may be made by third parties.

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PART I.

ITEM 1.  UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES

CIFC CORP. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See notes to condensed consolidated financial statements.

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CIFC CORP. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

See notes to condensed consolidated financial statements.

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CIFC CORP. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements.

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CIFC CORP. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.                                       ORGANIZATION

CIFC Corp. (formerly known as CIFC Deerfield Corp. and previously as Deerfield Capital Corp.) (“CIFC” and, together with its subsidiaries, “us,” “we” or “our”) is a Delaware corporation with an Investment Management segment that manages client assets, including collateralized loan obligations (“CLOs”), which have senior secured corporate loans (“SSCLs”) as the primary investments.  Our Investment Management segment earns investment advisory fees from managing investment accounts, principally the CLOs and also collateralized debt obligations (“CDOs”), which primarily invest in corporate debt and asset-backed securities (“ABS”), and other investment vehicles. We are required to consolidate the assets and liabilities of certain CLOs and CDOs we manage and they constitute our Consolidated Investment Products segment. In addition, through our Principal Investing segment, we manage our own fixed income investments.  These fixed income investments currently include SSCLs and other corporate debt and formerly included residential mortgage backed securities (“RMBS”). On April 13, 2011, we completed our previously announced merger with Commercial Industrial Finance Corp. (“Legacy CIFC”).  See Note 3 for a description of the merger.

Business Segments

We have three business segments:

Investment Management —Our Investment Management segment manages investment accounts for various types of clients.  These clients include CLOs, CDOs, and other investment vehicles. For a detailed description of CLOs see Note 4. These accounts are collective investment vehicles that pool the capital contributions of multiple investors, which are typically institutional investors. We specialize in managing corporate credit investments, including SSCLs and other corporate debt. Our primary source of revenue from our Investment Management segment is the investment advisory fees paid by our clients. These fees typically consist of management fees based on the amount of clients’ assets and, in certain cases, incentive fees based on the returns generated for certain investors.

Principal Investing —Our Principal Investing segment manages our own fixed income investments, which include SSCLs and other corporate debt, primarily through a CLO we consolidate within this segment because we own all of its subordinated notes. The Principal Investing segment also included significant investments in RMBS until we made the decision to liquidate this portfolio during the second quarter of 2011. Our investments in RMBS were backed by mortgage loans and guaranteed as to principal and interest by either federally chartered entities or the U.S. government (“Agency RMBS”). Income from our Principal Investing segment is influenced by four factors: (i) the difference between the interest income we earn on our investment portfolio and the cost of our borrowings net of hedges, if any, (ii) the net recognized gains and losses, if any, on our investment portfolio, (iii) provision for loan losses, if any, and (iv) the volume or aggregate amount of such investments.  See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” for further discussion of the liquidation of the RMBS portfolio.

Consolidated Investment Products —Our Consolidated Investment Products segment consists of certain CLOs (including one CDO) managed by our Investment Management segment which we are required to consolidate as Variable Interest Entities (“VIEs”) in accordance with consolidation guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810— Consolidation (“ASC Topic 810”), as amended by Accounting Standards Update (“ASU”) 2009-17 (“ASU 2009-17”). Effective January 1, 2010, we created our Consolidated Investment Products segment and consolidated six CLOs and one CDO within the segment. In conjunction with the acquisition of Columbus Nova Credit Investments Management, LLC (“CNCIM”), effective June 9, 2010, we consolidated four additional CLOs (the “CNCIM CLOs”) into this segment.  In conjunction with the merger with Legacy CIFC, effective April 13, 2011, we consolidated ten additional CLOs (the “CIFC CLOs”) into this segment (which, together with the ten CLOs and one CDO we previously consolidated, we refer to as the “CIP CLOs”).

As a result of the Merger and a shift to focus on our core investment management operations, management is re-evaluating our reportable segments and future periods may reflect a change in these reportable segments.

2.                                       ACCOUNTING POLICIES AND RECENT ACCOUNTING UPDATES

Basis of Presentation —We have prepared the accompanying unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and are in the form prescribed by the Securities and Exchange Commission (the “SEC”) pursuant to Regulation S-X and the instructions to Form 10-Q. Accordingly, we do not include all of the information and footnotes for complete financial statements. The interim unaudited condensed consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2010, which are included in our Annual Report on Form 10-K filed with the SEC on March 31, 2011 (our “2010 10-K”). In the opinion of our management, all adjustments, consisting of only normal recurring accruals,

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necessary for a fair presentation of our financial position, results of operations and cash flows have been included. The nature of our business is such that the results of any interim period information are not necessarily indicative of results for a full year.

Principles of Consolidation —The condensed consolidated financial statements include the financial statements of CIFC and (i) our wholly-owned subsidiaries, (ii) subsidiaries in which we have a controlling interest and (iii) VIEs with respect to which we are the primary beneficiary. All intercompany balances and transactions have been eliminated upon consolidation.

Beginning January 1, 2010, as a result of the adoption of the amendments to ASC Topic 810, we created our Consolidated Investment Products segment and currently consolidate the 21 CIP CLOs into this segment at fair value. We consolidate DFR Middle Market CLO Ltd. (“DFR MM CLO”) into our Principal Investing segment because we own all of its subordinated notes. See Note 4 for additional discussion concerning the consolidation of the CIP CLOs and DFR MM CLO.

Variable Interest Entities —ASC Topic 810 requires the consolidation of the assets, liabilities and results of operations of a VIE into the financial statements of the enterprise that is the primary beneficiary, through its controlling financial interest in the VIE. ASC Topic 810 provides a framework for determining whether an entity should be considered a VIE and evaluated for consolidation. Pursuant to this framework, we consider all parties to determine whether the entity is a VIE and, if so, whether our involvement with the entity results in a variable interest. If we determine that we do have a variable interest in the entity, we perform an analysis to determine whether we are the primary beneficiary. If we determine that we are the primary beneficiary, we consolidate the VIE into our condensed consolidated financial statements. A company is deemed to have a controlling financial interest in a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

Other than DFR MM CLO, in which we own all the subordinated notes, we have a variable interest in each of the CLOs and CDOs we manage due to the provisions of their respective management agreements. As of June 30, 2011, we had direct investments in certain of those CLOs, which represented a small portion of the total debt and subordinated notes issued by the CLOs. Where we had a direct investment, it was typically in the unrated, junior subordinated tranches of the CLOs. These unrated, junior subordinated tranches, referred to herein as “subordinated notes,” took the form of either subordinated notes or preference shares. For a detailed description of CLOs see Note 4.

For CLOs and CDOs, if we are deemed to have the power to direct the activities of the CLO or CDO that most significantly impact the economic performance and the obligation to absorb losses or the right to receive benefits that could be significant to the CLO or CDO, then we are deemed to be the primary beneficiary of the CLO or CDO and are required to consolidate the CLO or CDO. Beginning January 1, 2010, we consolidated CLOs where we were deemed to be the primary beneficiary into our Consolidated Investment Products segment. See Note 4 for additional discussion of our Consolidated Investment Products segment.

As of June 30, 2011, we had a variable interest in 22 additional CLOs and CDOs that were not consolidated as we were not the primary beneficiary of those VIEs. Our maximum exposure to loss associated with unconsolidated CLOs and CDOs is limited to future investment advisory fees and receivables. We recorded investment advisory fee receivables totaling $1.1 million and $1.0 million from the unconsolidated CLOs and CDOs as of June 30, 2011 and December 31, 2010, respectively.

Goodwill —Goodwill represents the excess cost of a business combination over the fair value of the net assets acquired. Goodwill is tested for impairment annually or more frequently when events or changes in circumstances indicate the asset might be impaired. The evaluation of goodwill for impairment requires us to make estimates and exercise significant judgment. As of June 30, 2011, there were no events or changes in circumstances that would indicate that the current carrying amount of goodwill might be impaired; accordingly, we did not perform interim testing procedures.

Reclassifications —Certain amounts in the condensed consolidated financial statements for the three and six months ended June 30, 2010 have been reclassified to conform to the presentation for the three and six months ended June 30, 2011.  See Note 8 for a description of the most significant of these reclassifications.

Significant Accounting Policies — Our significant accounting policies are discussed in the Notes to the Consolidated Financial Statements included in our 2010 10-K.

Recent Accounting Updates

In January 2010, the FASB issued ASU No. 2010-06, Fair Value Measurements and Disclosure—Improving Disclosures about Fair Value Measurements (“ASU 2010-06”). ASU 2010-06 amended ASC Topic 820— Fair Value Measurements and Disclosures (“ASC Topic 820”) to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. ASU 2010-06 also clarified existing fair value disclosures about the level of disaggregation as well as inputs and valuation techniques used to measure fair value. We

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previously adopted ASU 2010-06, with the exception of the requirement to provide disclosure of the Level 3 activity of purchases, sales, issuances and settlements on a gross basis, which we adopted for the three and six months ended June 30, 2011. See Note 5 for required fair value disclosures, including the amendments to ASC Topic 820.

In July 2010, the FASB issued ASU No. 2010-20, Receivables—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses (“ASU 2010-20”). ASU 2010-20 amended ASC Topic 310— Receivables (“ASC Topic 310”)  to add enhanced disclosure requirements related to financing receivables, on a disaggregated basis. ASU 2010-20 requires specific additional disclosures that assist the financial statement users’ evaluation of the nature of credit risk inherent in the entity’s financing receivable portfolio, how the entity analyzes and assesses that risk when arriving at their allowance for credit losses, and the changes and reasons for those changes in the entity’s allowance for credit losses. We previously adopted the additional disclosures as of the end of a reporting period for the year ended December 31, 2010. We adopted the additional disclosures about activity that occurs during a reporting period for the three and six months ended June 30, 2011. See Note 6 for required disclosures relating to our financing receivables and the related allowance for credit losses.

In April 2011, the FASB issued ASU No. 2011-02, A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring (“ASU 2011-02”). ASU 2011-02 amends ASC Topic 310 to provide new guidance to assist creditors in determining if a restructuring constitutes a troubled debt restructuring, thus requiring specific disclosures outlined in ASC Topic 310. ASU 2011-02 will be effective for interim and annual periods beginning on or after June 15, 2011, and will be applied retrospectively to the beginning of the annual period of adoption. We have elected to adopt the amendments to ASC Topic 310 for the three and six months ended June 30, 2011, and the adoption did not have an impact on our condensed consolidated financial statements.  See Note 6 for the required disclosure relating to troubled debt restructurings during the three and six months ended June 30, 2011.

In May 2011, the FASB issued ASU No. 2011-4, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-4”).  ASU 2011-4 amends ASC Topic 820 to converge the fair value framework between U.S. GAAP and International Financial Reporting Standards.  ASU 2011-4 clarifies existing fair value measurement guidance, updates the fair value measurement principles for certain financial instruments and expands fair value disclosure requirements.  ASU 2011-4 will be effective for interim and annual reporting periods beginning after December 15, 2011.  We are currently assessing the impacts ASU 2011-4 will have in our condensed consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-5, Presentation of Comprehensive Income (“ASU 2011-5”).  ASU 2011-5 amends ASC Topic 220 — Comprehensive Income to require entities to report components of comprehensive income either in a single continuous statement of comprehensive income or two separate but consecutive statements.  ASU 2011-5 does not change the items that must be reported in other comprehensive income.  ASU 2011-5 will be effective for interim and annual reporting periods beginning after December 15, 2011.  We are currently assessing the alternative presentations.

3. MERGER WITH LEGACY CIFC

On April 13, 2011 (the “Merger Closing Date”), we completed our previously announced merger with Legacy CIFC (the “Merger”). As a result of the Merger, Legacy CIFC became a wholly-owned subsidiary of CIFC.  In conjunction with the Merger, Legacy CIFC became CIFC Asset Management LLC (“CIFCAM”). The consideration for the Merger paid or payable to CIFC Parent Holdings, LLC (“CIFC Parent”), the sole stockholder of Legacy CIFC, consisted of (i) 9,090,909 shares of our common stock (the “Stock Consideration”), (ii) $7.5 million in cash, payable in three equal installments of $2.5 million (subject to certain adjustments), the first of which was paid on the Merger Closing Date and the remaining of which are payable on the first and second anniversaries of the Merger Closing Date, (iii) $4.2 million in cash as consideration for the cash balance at Legacy CIFC on the Merger Closing Date (adjusted for certain items), (iv) out-of pocket costs and expenses incurred by Legacy CIFC and CIFC Parent in connection with the Merger of approximately $2.9 million, (v) the first $15.0 million of incentive fees received by the combined company from certain CLOs currently managed by CIFCAM, (vi) 50% of any incentive fees in excess of $15.0 million in the aggregate received by the combined company over the next ten years from certain CLOs currently managed by CIFCAM and (vii) payments relating to the present value of any such incentive fees from certain CLOs currently managed by CIFCAM that remain payable to the combined company after the tenth anniversary of the Merger Closing Date.  The Merger is reflected in our condensed consolidated financial statements as of June 30, 2011, and for the period from the Merger Closing Date to June 30, 2011.

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Calculation of the purchase consideration in accordance with ASC Topic 805 — Business Combinations (“ASC Topic 805”) is as follows:

(1)           Represents the closing price of the Company’s Common Stock on the Merger Closing Date.

(2)                                   Represents cash consideration paid on the Merger Closing Date.  Includes $4.2 million as consideration for the estimated Merger Closing Date cash balance at Legacy CIFC, adjusted for certain items, and a $2.5 million installment cash payment.

(3)                                   Represents estimated out-of pocket costs and expenses incurred by Legacy CIFC and CIFC Parent in connection with the Merger.  This excludes $0.2 million of out-of-pocket costs and expenses charged to additional paid-in capital.

(4)                                   Represents the fair value of fixed deferred payments to CIFC Parent per the Agreement and Plan of Merger dated as of December 21, 2010, (as amended from time to time, the “Merger Agreement”). These payments total $5.0 million and are to be paid in two equal annual installments of $2.5 million, with the first payment being made on the first anniversary of the Merger Closing Date, The $2.5 million payments are not contingent on any performance, but rather are due as a result of the passage of time and were discounted to arrive at an estimated fair value.

(5)                                  Represents the fair value of contingent deferred payments to CIFC Parent per the Merger Agreement. The payments are to be paid as follows: (i) the first $15.0 million of incentive fees received by the combined company from certain CLOs currently managed by CIFCAM, (ii) 50% of any incentive fees in excess of $15.0 million in aggregate received by the combined company over the next ten years from certain CLOs currently managed by CIFCAM and (iii) payments relating to the present value of any such incentive fees from certain CLOs currently managed by CIFCAM that remain payable to the combined company after the tenth anniversary of the Merger Closing Date. The incentive fee payments were based on projected future incentive fees from the CLOs and were discounted to arrive at an estimated fair value.

The following is a summary of the recognized amounts of assets acquired and liabilities assumed as a result of the Merger:

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The fair values of the assets acquired and the liabilities assumed were estimated by management with the assistance of an independent valuation firm.  The identifiable intangible assets acquired by asset class are as follows:

The fair value of the intangible assets related to the investment management contracts of CIFCAM and its wholly-owned subsidiary, CypressTree Investment Management, LLC (“CypressTree”), were determined utilizing an excess earnings approach based upon projections of future investment advisory fees from the CLOs. Significant inputs to the investment advisory fee projections include the structure of the CLOs and estimates related to loan default rates, recoveries and discount rates.  The intangible assets related to the management contracts are amortized based on a ratio of expected discounted cash flows from the contracts over the expected remaining term of the contracts. The fair value of the intangible assets related to the “Commercial Industrial Finance Corp.” and “CIFC” trade names and technology were determined utilizing a relief from royalty method applied to expected cash flows and are amortized on a straight-line basis over their estimated remaining useful lives. The fair value of the intangible assets associated with the non-compete agreements was determined using a lost cash flows analysis and are amortized on a straight-line basis over the estimated remaining useful life.

The Company recorded amortization expense of $3.0 million for the three and six months ended June 30, 2011, related to the amortization of the intangible assets acquired.  The following table presents expected remaining amortization expense of the identifiable intangible assets acquired:

The contingent liabilities assumed in the Merger primarily represent contingent consideration related to Legacy CIFC’s acquisition of CypressTree on December 1, 2010 and contingent liabilities Legacy CIFC assumed in its acquisition of CypressTree related to required payments to the prior sellers of CypressTree and the broker of that sale.  These contingent liability valuations are based on discounted cash flow projections of future investment advisory fees earned on the CLOs managed by CypressTree.  These contingent liabilities and the contingent deferred payment liabilities for the Merger will be remeasured at fair value at each reporting date and recorded within contingent liabilities on the condensed consolidated balance sheets.  For the three and six months ended June 30, 2011, a loss of $2.9 million was recorded within net gain (loss) on investments, loans, derivatives and liabilities on the condensed consolidated statements of operations related to the changes in fair value on contingent liabilities.

Goodwill of $57.1 million is the excess of the total purchase consideration over the identifiable tangible and intangible assets acquired in the Merger. Goodwill relates to (i) the additional strategic opportunities that we believe will be available to us as a result of our increased scale, improved financial condition, an experienced management team and the addition of the CIFCAM CLO fund family, which has market-leading performance in the U.S.-managed CLO segment, (ii) the issuance of new CLOs and other investment products based on our corporate credit expertise and (iii) the expected cost synergies from the Merger. All of the goodwill related to the Merger was allocated to our Investment Management segment.

The Merger with Legacy CIFC was a nontaxable business combination.  Consequently, the future amortization expense related to approximately $37.7 million of the identifiable intangible assets associated with the CLOs managed by CIFCAM will not be

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deductible for income tax purposes.  In accordance with GAAP applicable to nontaxable business combinations, we recorded a deferred tax liability of approximately $17.2 million for the future financial reporting income tax benefit of the amortization of these intangible assets.  Other taxable or deductible temporary differences related primarily to Legacy CIFC’s net operating loss carryforwards and its acquisition of CypressTree resulted in a net deferred tax asset of approximately $12.0 million.  The net deferred tax liability from all of these temporary differences was $5.2 million and this amount was added to goodwill.

Management is currently in the process of reviewing the final purchase price calculations related to identifiable intangible assets, goodwill, net deferred tax liabilities and contingent liabilities.

We have expensed Merger-related costs (other than those related to stock issuance) as incurred.  For the three and six months ended June 30, 2011, we incurred expenses related to the Merger of $1.7 million and $3.2 million, respectively, offset by a $1.8 million reclassification to additional paid-in capital for stock issuance costs, for a net benefit of $0.1 million during the three months ended June 30, 2011 and a net expense of $1.4 million for the six months ended June 30, 2011 recorded within strategic transactions expenses in the condensed consolidated statements of operations.

As a result of the Merger, on the Closing Date we changed our name to CIFC Deerfield Corp. and moved our principal executive offices and corporate headquarters from 6250 North River Road, 12th Floor, Rosemont, Illinois 60018 to 250 Park Avenue, 5th Floor, New York, NY 10177.  In addition, the state of incorporation of CIFC Deerfield Corp. was changed from Maryland to Delaware.  On July 19, 2011, we changed our name to CIFC Corp.

Unaudited Pro Forma Financial Information

During the three and six months ended June 30, 2011, we recognized net revenues of $3.9 million ($3.1 million of which are eliminated upon consolidation) and net loss attributable to CIFC Corp. of $6.2 million related to CIFCAM and CypressTree. As a result of the Merger, we began to consolidate ten CIFC CLOs and as of June 30, 2011, we consolidated assets of $4.3 billion and non-recourse liabilities of $4.1 billion related to the CIFC CLOs. For the three and six months ended June 30, 2010, we recorded a net loss of $68.9 million related to the consolidation of the CIFC CLOs.  This was comprised of net revenues of $29.8 million, expenses of $4.3 million and net losses of $94.4 million in net other income (expense) and gain (loss).

The following unaudited pro forma combined financial information gives effect to the Merger as well as the following transactions (collectively, the “Transactions”) (with the defined terms having the meanings described in the consolidated financial statements for the year ended December 31, 2010 and notes thereto included in our Annual Report on Form 10-K) as if they had been completed as of January 1, 2010: (1) the CNCIM Acquisition and issuance of the Acquisition Shares, and the issuance of the Convertible Notes; (2) the Senior Notes Discharge; (3) the Trust Preferred Exchange; and (4) the DPLC Restructuring.

This unaudited pro forma combined financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results that would have occurred if the Merger or the Transactions had been consummated during the period or as of the dates for which pro forma data is presented, nor is it necessarily indicative of future operating results of CIFC.  The pro forma combined financial information for the three and six months ended June 30, 2011 and 2010 does not give effect to the application of ASC Topic 810 for the period prior to the Merger as it relates to the CIFC CLOs and for the period prior to the CNCIM Acquisition as it relates to the four CNCIM CLOs.  In addition, the pro forma combined financial information for the three and six months ended June 30, 2010 does not give effect to the Legacy CIFC acquisition of CypressTree for the period prior to the December 1, 2010 acquisition.

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4. CLOS, THE CONSOLIDATED INVESTMENT PRODUCTS SEGMENT AND DFR MM CLO

Collateralized Loan Obligations (CLOs)

The term CLO (which for purposes of the discussion in this section also includes the term CDO) generally refers to a special purpose vehicle that owns a portfolio of investments and issues various tranches of debt and subordinated note securities to finance the purchase of those investments. The investments purchased by the CLO are governed by extensive investment guidelines, including limits on the CLO’s exposure to any single industry or issuer and limits on the ratings of the CLO’s assets. Most CLOs have a defined investment period during which they are allowed to make investments or reinvest capital as it becomes available.

CLOs typically issue multiple tranches of debt and subordinated note securities with varying ratings and levels of subordination to finance the purchase of investments. These securities receive interest and principal payments from the CLO in accordance with an agreed upon priority of payments, commonly referred to as the “waterfall.” The most senior notes, generally rated AAA/Aaa, commonly represent the majority of the total liabilities of the CLO. This tranche of notes is issued at a specified spread over LIBOR and normally has the first claim on the earnings on the CLO’s investments after payment of certain fees and expenses. The mezzanine tranches of rated notes generally have ratings ranging from AA/Aa to BB/Ba and also are usually issued at a specified spread over LIBOR with higher spreads paid on the tranches with lower ratings. Each tranche is typically only entitled to a share of the earnings on the CLOs’ investments if the required interest and principal payments have been made on the more senior tranches. The most junior tranche can take the form of either subordinated notes or preference shares and is referred to as the CLO’s “subordinated notes.” The subordinated notes generally do not have a stated coupon but are entitled to residual cash flows from the CLOs’ investments after all of the other tranches of notes and certain other fees and expenses are paid.  The majority of the subordinated notes of the CLOs we manage are owned by third parties. See Note 14 for disclosure of ownership of CLOs we manage by related parties. We own all of the subordinated notes of DFR MM CLO and a significantly smaller portion of the subordinated notes of certain of the other CLOs we manage.  Our two principal stockholders own, either directly or indirectly, subordinated notes in nine of the CIP CLOs and two CLOs which we manage but do not consolidate .

CLOs generally appoint a collateral manager to manage their investments. In exchange for their services, CLO managers typically receive three types of fees: senior management fees, subordinated management fees and incentive fees. CLOs also generally appoint a trustee and collateral administrator, who is responsible for holding the CLOs’ investments, collecting investment income and distributing that income in accordance with the waterfall.

The Consolidated Investment Products Segment

We consolidated the 21 CIP CLOs with assets of $8.4 billion and non-recourse liabilities of $7.8 billion into our condensed consolidated financial statements as of June 30, 2011. The CIP CLOs include the ten CIFC CLOs we consolidated effective April 13, 2011 in conjunction with the Merger. The CIFC CLOs include six CLOs managed by CIFCAM and four CLOs managed by CypressTree and as of June 30, 2011, we consolidated assets of $4.3 billion and non-recourse liabilities of $4.1 billion related to these CLOs. Although we consolidate 100% of the assets, liabilities and subordinated notes of the CIP CLOs, our maximum exposure to loss related to the CIP CLOs is limited to our investments and beneficial interests in the CIP CLOs ($9.9 million and $9.3 million as of June 30, 2011 and December 31, 2010, respectively), our investment advisory fee receivables from the CIP CLOs ($2.1 and $1.2 million as of June 30, 2011 and December 31, 2010, respectively), and our future investment advisory fees, all of which are eliminated upon consolidation.

The assets of each of the CIP CLOs are held solely as collateral to satisfy the obligations of the respective CIP CLO. We have no right to the benefits from, nor do we bear the risks associated with, the assets held by the CIP CLOs beyond our minimal direct investments and beneficial interests in, and investment advisory fees generated from, the CIP CLOs. If CIFC were to liquidate, the assets of the CIP CLOs would not be available to the general creditors of CIFC, and as a result, we do not consider them our assets. Additionally, the investors in the CIP CLOs have no recourse to our general assets for the debt issued by the CIP CLOs. Therefore, this debt is not our obligation.

We have elected the fair value option for all assets and liabilities of the CIP CLOs. We have determined that, although the junior tranches of the CIP CLOs have certain characteristics of equity, they should be recorded as debt on our condensed consolidated balance sheets, as the junior tranches have a stated maturity indicating a date on which they are mandatorily redeemable. The subordinated notes of the CIP CLOs are also classified as debt on our condensed consolidated balance sheets, since redemption is required only upon liquidation or termination of the CLO and not upon liquidation or termination of CIFC.

For the three and six months ended June 30, 2011, the net losses of $93.6 million and $110.4 million, respectively, recorded in our condensed consolidated statements of operations related to the CIP CLOs were not indicative of the cash flow distributions we received from the CIP CLOs of $12.4 million and $18.0 million, respectively. The $12.4 million received from the CIP CLOs during the three months ended June 30, 2011 primarily consisted of investment advisory fees of $11.5 million and subordinated notes

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distributions of $0.9 million. The $18.0 million received from the CIP CLOs during the six months ended June 30, 2011 consisted of investment advisory fees of $16.2 million, subordinated notes distributions of $1.7 million and interest on our debt investments of $0.1 million.  For the three and six months ended June 30, 2010, the net losses of $19.7 million and $29.2 million, respectively, recorded in our condensed consolidated statements of operations related to the CIP CLOs were not indicative of the cash flow distributions we received from the CIP CLOs of $3.7 million and $7.3 million, respectively. The $3.7 million received from the CIP CLOs during the three months ended June 30, 2010 primarily consisted of investment advisory fees of $3.5 million, subordinated notes distributions of $0.1 million and interest on our debt investments of $0.1 million. The $7.3 million received from the CIP CLOs during the six months ended June 30, 2010 consisted of investment advisory fees of $7.0 million, subordinated notes distributions of $0.2 million and interest on our debt investments of $0.1 million.

We have included other required disclosures related to our Consolidated Investment Products segment in Notes 2, 5, 7, 10, 11 and 16.

DFR MM CLO

Although we consolidate 100% of the assets and liabilities of DFR MM CLO into our Principal Investing segment, our maximum exposure to loss on our investment in this entity is limited to our initial investment of $69.0 million ($50.0 million of subordinated notes and $19.0 million of debt). The economic impact of our investment in DFR MM CLO is determined by the cash distributed to us on our investment therein which, from the date of our initial investment through June 30, 2011, has totaled $45.3 million on our subordinated notes investment and $4.3 million in interest on our debt investment. DFR MM CLO’s debt holders have recourse only to the assets of the DFR MM CLO and not to our general assets. Our subordinated notes investment is subject to diversion of cash flows in accordance with the DFR MM CLO indenture.

Net income we record in our consolidated statements of operations for DFR MM CLO is not always indicative of the cash distributions we receive. For the three and six months ended June 30, 2011, we recorded net losses of $1.7 million and zero, respectively, in our condensed consolidated statements of operations for DFR MM CLO and received cash distributions from DFR MM CLO of $3.4 million and $7.0 million, respectively. These cash distributions included $3.2 million and $6.6 million related to our investment in the subordinated notes for the three and six months ended June 30, 2011, respectively, and $0.2 million and $0.4 million in interest on our investment in debt for the three and six months ended June 30, 2011, respectively. For the three and six months ended June 30, 2010, we recorded net income of $7.4 million and $10.6 million, respectively, in our condensed consolidated statements of operations for DFR MM CLO and received cash distributions from DFR MM CLO of $4.1 million and $7.9 million, respectively. These cash distributions included $3.9 million and $7.5 million related to our investment in the subordinated notes for the three and six months ended June 30, 2010, respectively, and $0.2 million and $0.4 million in interest on our investment in debt for the three and six months ended June 30, 2010, respectively. Although we expect to receive future cash distributions on our investment in the subordinated notes, it is very difficult to predict the timing and amount of such future cash distributions. We consolidated assets of $207.3 million and liabilities of $148.3 million related to DFR MM CLO as of June 30, 2011.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

We have categorized our financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy based upon the transparency of the inputs to the valuation of the asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is determined by the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

Level 1— inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets .

The types of assets included in Level 1 are generally equity securities or derivatives listed on an exchange with active markets. We held no Level 1 securities as of June 30, 2011 or December 31, 2010.

Level 2 —inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Our assets and liabilities generally included in this category are Agency RMBS, loans classified as either investments at fair value or loans held for sale where asset valuations are provided by independent pricing services, corporate bonds, long-term debt of our Consolidated Investment Products segment, interest rate derivatives and our total return swap.

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Level 3 —inputs to the valuation methodology include significant unobservable inputs to the fair value measurement. This includes situations where there is little, if any, market activity for the asset or liability.

Our assets and liabilities generally included in this category are certain corporate bonds, loans classified as either investments at fair value or loans held for sale where asset valuations are not provided by independent pricing services, warrants, subordinated notes of our Consolidated Investment Products segment and the conversion feature contained in our senior subordinated convertible notes, which is deemed an embedded derivative instrument.

Our valuation methodologies and accounting policy are discussed in the notes to the Consolidated Financial Statements included in our 2010 10-K.  There were no significant changes in our valuation methodologies during the six months ended June 30, 2011.

The following is a description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy described above. Under certain market conditions, we may make adjustments to the valuation methodologies described below. We maintain a consistent policy for the process of identifying when and how such adjustments should be made. To the extent that we make a significant fair value adjustment, the valuation classification would generally be considered Level 3 within the fair value hierarchy.

Investments at Fair Value

Investments at fair value include RMBS, loans and other investments held in our Consolidated Investment Products segment, certain loans held by our Principal Investing segment, corporate bonds and beneficial interests in CLOs. The fair value for RMBS generally represents a modeled valuation, which includes spreads and prepayment rates which are observable in the market. Agency RMBS are classified as Level 2 within the fair value hierarchy. Loans and other investments held in our Consolidated Investment Products segment, loans at fair value held by our Principal Investing segment and corporate bonds are generally valued at a composite of the mid-point in the bid-ask spread of broker quotes or based on the composite price of a different tranche of the same or similar security if broker quotes are unavailable for the specific tranche we own. Loans and other investments held in our Consolidated Investment Products segment, loans at fair value held by our Principal Investing segment and corporate bonds held in DFR MM CLO valued in this manner are classified as Level 2 within the fair value hierarchy.  Where no such quotes are available, the value may be based on an internally developed model using composite or other comparable market data which includes unobservable market inputs. Loans and other investments held in our Consolidated Investment Products segment valued in this manner are classified as Level 3 within the fair value hierarchy.

Derivative assets and liabilities

The derivatives held by us (other than the total return swap (the “Warehouse TRS”) and the embedded derivative) generally represent instruments traded in the over-the-counter market and are valued using internally developed market-standard models. The inputs to the valuation models for the interest rate swaps and caps represent observable market data available at commonly quoted intervals for the full terms of the contracts. All interest rate derivatives are classified as Level 2 within the fair value hierarchy. The valuation models for warrants contain one or more significant unobservable inputs and are classified as Level 3 within the fair value hierarchy. The fair value of the Warehouse TRS is calculated as the sum of (i) the change in fair value of the reference obligations (SSCL’s which are valued at a composite of the mid-point in the bid-ask spread of broker quotes or based on the composite price of a different tranche of the same or similar security if broker quotes are unavailable for the specific tranche) (ii) net realized gains (losses) on reference obligations sold during the period and (iii) interest income earned on the reference obligations, less an amount equal to LIBOR plus an agreed upon margin on the outstanding notional amount of the reference obligations. The Warehouse TRS is classified as Level 2 within the fair value hierarchy. See Note 7 for further disclosure regarding the Warehouse TRS. Our senior subordinated convertible notes (the “Convertible Notes”) contain a conversion feature with certain antidilution provisions that cause the conversion feature to be deemed an embedded derivative instrument (the “Embedded Derivative”). The Embedded Derivative is valued by valuing the Convertible Notes and subsequently valuing the Convertible Notes eliminating the conversion right. The difference represents the value of the Embedded Derivative. The valuation of the Embedded Derivative is determined using a binomial tree model using one or more significant unobservable inputs and is classified as Level 3 within the fair value hierarchy.

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value. If the fair value of a loan is less than its cost basis, a valuation adjustment is recognized in the condensed consolidated statements of operations, and the loan’s carrying value is adjusted accordingly. The valuation adjustment may be recovered if the fair value increases, which is also recognized in the condensed consolidated statements of operations. Loans held for sale recorded at fair value are generally valued at a composite of the mid-point in the bid-ask spread of broker quotes or based on the composite price of a different tranche of the same or similar security if broker

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quotes are unavailable for the specific tranche we own. We classify loans held for sale valued in this manner as Level 2 within the fair value hierarchy. Where no such quotes are available, the value may be based on an internally developed model using composite or other comparable market data which includes unobservable market inputs. Loans held for sale valued in this manner are classified as Level 3 within the fair value hierarchy.

Contingent Liabilities

The fair value for the contingent liabilities are based on discounted cash flow projections of the relevant future investment advisory fee cash flows from the CLOs managed by CIFCAM and CypressTree.  The contingent liabilities are classified as Level 3 within the fair value hierarchy.

Long-Term Debt of our Consolidated Investment Products Segment

Long-term debt of our Consolidated Investment Products segment consists of debt and subordinated notes of the CIP CLOs. The fair value for the debt of the CIP CLOs generally represents a modeled valuation that uses both observable and unobservable market inputs. The debt of our CIP CLOs valued in this manner are classified as Level 2 within the fair value hierarchy. The subordinated notes of the CIP CLOs are valued by management by considering, among other things, available broker quotes. If a broker quote is unavailable, the subordinated notes of CLOs are valued using internally developed models that utilize composite or other comparable market data we believe would be used by market participants, which includes unobservable market inputs. The subordinated notes of our CIP CLOs valued in this manner are classified as Level 3 within the fair value hierarchy.

Assets and liabilities measured at fair value on a recurring basis

The following table presents the financial instruments carried at fair value on a recurring basis, by caption in the condensed consolidated balance sheets and by level within the ASC Topic 820 valuation hierarchy for our Principal Investing and Investment Management segments:

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The following table presents the financial instruments carried at fair value on a recurring basis, by caption in the condensed consolidated balance sheets and by level within the ASC Topic 820 valuation hierarchy for our Consolidated Investment Products segment:

Changes in Level 3 recurring fair value measurements

The table below includes a rollforward of the balance sheet amounts for the three months ended June 30, 2011 (including the change in fair value) for financial instruments classified within Level 3 of the valuation hierarchy for our Principal Investing and Investment Management segments: