1175483--3/16/2009--NEWCASTLE_INVESTMENT

related topics

{investment, property, distribution}

{loan, real, estate}

{tax, income, asset}

{provision, law, control}

{debt, indebtedness, cash}

{stock, price, share}

{condition, economic, financial}

{stock, price, operating}

{loss, insurance, financial}

{competitive, industry, competition}

We do not know what impact the U.S. government s plans to purchase large amounts of illiquid, mortgage-backed and other securities, or its plans to modify the terms of outstanding loans, will have on the financial markets or our business. We are subject to counterparty default and concentration risks. We are dependent on our manager and may not find a suitable replacement if our manager terminates the management agreement. There are conflicts of interest in our relationship with our manager. It would be difficult and costly to terminate our management agreement with our manager. Our directors have approved very broad investment guidelines for our manager and do not approve each investment decision made by our manager. We may change our investment strategy without stockholder consent, which may result in our making investments that entail more risk than our current investments. Deterioration of market conditions will likely continue to negatively impact our business, results of operations and financial condition, including liquidity. A prolonged economic slowdown, a lengthy or severe recession, or declining real estate values could harm our operations. We have limited liquidity. We are party to agreements that require cash payments at periodic intervals, including during the next twelve months. Failure to make such required payments have a material adverse affect on our business, financial condition and results of operations. The use of CBO financings with coverage tests may have a negative impact on our operating results and cash flows. We may experience an event of default or the removal of us as collateral manager under one or more of our CBOs, which would negatively affect us in a number of ways. Our investments have previously been and in the future may be subject to significant impairment charges, which adversely affect our results of operations. The lenders under our repurchase agreements may elect not to extend financing to us, which could quickly and seriously impair our liquidity. Our determination of how much leverage to apply to our investments may adversely affect our return on our investments and may reduce cash available for distribution. Although we seek to match fund our investments to limit refinance risk and lock in net spreads, we do not currently match fund our investments not held in our CBOs, which increases the risks related to refinancing these investments. We may not be able to finance our investments on a long term basis on attractive terms, including by means of securitization, which may require us to seek more costly financing for our investments or to liquidate assets. The loans we invest in, and the loans underlying the securities and total rate of return swaps we invest in, are subject to delinquency, foreclosure and loss, which could result in losses to us. We face a heightened risk of delinquency and loss from our investment in subprime mortgage loans. Our investments in debt securities are subject to specific risks relating to the particular issuer of the securities and to the general risks of investing in subordinated real estate securities. We may be required to post significant amounts of cash collateral at any time to satisfy our margin requirements under some of our financing arrangements, which could adversely affect our liquidity, results of operations and financial condition. We are subject to significant competition and we may not compete successfully. Both during the ramp up phase of a potential CBO financing and following the closing of a CBO financing when we have locked in the liability costs for a CBO during the reinvestment period, the rate at which we are able to acquire eligible investments and changes in market conditions may adversely affect our anticipated returns. Our returns will be adversely affected when investments held in CBOs are prepaid or sold subsequent to the reinvestment period. Our investments in senior unsecured REIT securities are subject to specific risks relating to the particular REIT issuer and to the general risks of investing in subordinated real estate securities, which may result in losses to us. The real estate related loans and other direct and indirect interests in pools of real estate properties or other loans that we invest in may be subject to additional risks relating to the structure and terms of these transactions, which may result in losses to us. We may not be able to extend any total return swaps that we enter into in the event that the maturity of the underlying asset is extended, which could adversely impact our leveraging strategy. Investment in non-investment grade loans may involve increased risk of loss. Insurance on real estate in which we have interests (including the real estate serving as collateral for our real estate securities and loans) may not cover all losses. Many of our investments are illiquid, and this lack of liquidity could significantly impede our ability to vary our portfolio in response to changes in economic and other conditions or to realize the value at which such investments are carried if we are required to dispose of them. Interest rate fluctuations and shifts in the yield curve may cause losses. Our investments in real estate securities and loans are subject to changes in credit spreads, which could adversely affect our ability to realize gains on the sale of such investments. Any hedging transactions that we enter into may limit our gains or result in losses. Under certain conditions, increases in prepayment rates can adversely affect yields on certain investments, including our residential mortgage loans. Environmental compliance costs and liabilities with respect to our real estate in which we have interests may adversely affect our results of operations. Our failure to qualify as a REIT would result in higher taxes and reduced cash available for distribution to our stockholders. Our failure to qualify as a REIT would constitute an event of default under a significant number of our financings and other agreements and would cause our common and preferred stock to be delisted from the NYSE. Dividends payable by REITs do not qualify for the reduced tax rates. REIT distribution requirements could adversely affect our liquidity and our ability to execute our business plan. We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay distributions to our stockholders. The stock ownership limit imposed by the Internal Revenue Code for REITs and our charter may inhibit market activity in our stock and restrict our business combination opportunities. Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow. Complying with REIT requirements may cause us to forego otherwise attractive opportunities. Complying with REIT requirements may limit our ability to hedge effectively. The taxable mortgage pool rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations. Maintenance of our Investment Company Act exemption imposes limits on our operations. ERISA may restrict investments by plans in our common stock. Maryland takeover statutes may prevent a change of our control. This could depress our stock price. Our authorized, but unissued common and preferred stock may prevent a change in our control. Our stockholder rights plan could inhibit a change in our control. Our staggered board and other provisions of our charter and bylaws may prevent a change in our control. We are currently not in compliance with one of the NYSE s listing standards, and our shares of common stock and preferred stock may be delisted from the NYSE in the near future, which would reduce the trading activity and share price of both our common and preferred shares. Our share price has fluctuated significantly, particularly on a percentage basis, and may fluctuate significantly in the future. Accordingly, you may not be able to resell your shares at or above the price at which you purchased them. We may be unable or elect not to pay dividends on our common or preferred shares in the future, which would negatively impact our business in a number of ways and decrease the price of our common and preferred shares. An increase in market interest rates may have an adverse effect on the market price of our common stock.

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1175483--3/16/2009--NEWCASTLE_INVESTMENT_CORP