PHILADELPHIA, March 4 /PRNewswire-FirstCall/ -- Alesco Financial
Inc. (NYSE:AFN) ("AFN" or the "Company"), a specialty finance real
estate investment trust, today announced financial results for the
three-months and twelve-months ended December 31, 2008. AFN
reported a GAAP net loss for the three-months ended December 31,
2008 of ($212.5) million, or ($3.60) per diluted common share, as
compared to a net loss of ($729.3) million, or ($12.31) per diluted
common share for the three-months ended December 31, 2007. AFN's
net loss for the three-month period ended December 31, 2008
included a loss of ($137.4) million due to interest rate hedging
activities, net of minority interest, and an impairment charge of
($101.0) million on leveraged loans included in an on-balance sheet
warehouse credit facility, partially offset by a gain of $14.1
million due to the repurchase and retirement of a portion of the
Company's convertible debt. AFN reported a GAAP net loss for the
twelve-months ended December 31, 2008 of ($144.7) million, or
($2.43) per diluted common share, as compared to a net loss of
($1.3) billion or ($22.48) per diluted common share for the
twelve-months ended December 31, 2007. AFN's net loss for the
twelve-month period ended December 31, 2008 included a loss of
($197.1) million due to interest rate hedging activities, net of
minority interest, including charges of ($48.6) million due to the
reclassification into the income statement of MBS related cash-flow
hedging losses that were previously included in accumulated other
comprehensive loss, partially offset by a gain of $58.0 million due
to the repurchase and retirement of a portion of the Company's
convertible debt. Book Value and Investment Portfolio Summary The
following table summarizes our allocation of capital and book value
as of December 31, 2008 (amounts in thousands, except share and per
share data): Net Investment Income Capital GAAP (Loss) for the
Invested Book Value Three-Month as of as of Period Ended December
31, % of December 31, December 31, 2008 (A) Capital 2008 2008 (B)
TruPS investments $236,234 39% $27,974 $13,631 Leveraged loan
investments 87,126 14% (11,488) (1,338) Kleros Real Estate MBS
investments 90,000 15% - (7,933) Residential mortgages 75,504 13%
37,430 (16,751) Other investments 27,391 5% 1,168 302 Total
uninvested cash 86,035 14% 86,035 - Total investible capital
602,290 100% 141,119 (12,089) Recourse indebtedness (C) (76,775)
(76,775) (1,745) Total $525,515 $64,344 $(13,834) Common stock
outstanding as of December 31, 2008 59,185,514 GAAP Book Value per
share $1.09 (A) Represents net cash invested through December 31,
2008. (B) Net investment income (loss) includes amounts earned by
the minority interest holders in certain consolidated VIEs. Net
investment income (loss) for the leveraged loans asset class and
the residential mortgage loans asset class is presented net of $8.9
million and $19.5 million, respectively, for provisions for loan
losses recorded during the three-months ended December 31, 2008.
Net investment income (loss) does not include interest income of
$0.2 million on uninvested cash, or $0.2 million of interest
earnings on the restricted cash at our consolidated CDO entities.
Additionally, net investment income (loss) excludes $8.2 million of
net periodic interest payments that relate to interest rate swap
contracts that are no longer accounted for as cash flow hedges upon
the adoption of SFAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities." The $8.2 million relates to the
following asset classes: $5.1 million decrease to TruPS
investments, $3.7 million decrease to Kleros Real Estate MBS
investments, and a $0.6 million increase to Residential Mortgages.
(C) Amount is net of our $1.5 million investment in common
securities of the trusts that issued our junior subordinated
debentures. The $1.5 million is recorded within other assets in our
consolidated financial statements. Investments in Debt Securities
The following table summarizes our investments in debt securities
as of December 31, 2008 (dollars in thousands): Weighted- Weighted
Average Amortized Unrealized Estimated Average Years to Investment
Description Cost Losses Fair Value Coupon Maturity (dollars in
thousands) December 31, 2008 (1): TruPS and subordinated debentures
and security-related receivables $5,542,613 $(3,921,133) $1,621,480
5.4 % 27.4 MBS 2,035,566 (1,577,296) 458,270 3.0 % 6.6 Total
$7,578,179 $(5,498,429) $2,079,750 4.6 % 21.7 (1) Subsequent to the
adoption of SFAS No. 159 on January 1, 2008, all of the Company's
investments in debt securities are classified as trading
securities. Prior to January 1, 2008, all of the Company's
investments in debt securities were classified as
available-for-sale. The estimated fair values of our investments
are based primarily on quoted market prices from independent
pricing sources, or when quoted market prices are not available
because certain securities do not actively trade in the public
markets, based on comparisons to similar instruments or from
internal pricing models. These internal valuation models include
discounted cash flow analyses developed by management using current
interest rates, estimates of the term of the particular contract,
specific issuer information and other market data for securities
without an active market. Management's estimates of fair value
require significant management judgment and are subject to a high
degree of variability based upon market conditions, the
availability of specific issuer information and management's
assumptions. As of December 31, 2008, the aggregate principal
amount of investments in the 35 TruPS investments that have
defaulted or are currently deferring interest payments is $551.0
million, representing approximately 10.7% of our combined TruPS
portfolio. As of December 31, 2008, $250.5 million of defaulted
securities, which includes securities issued by IndyMac Bancorp,
have been completely written off in our consolidated financial
statements. For the three-months ended December 31, 2008,
investment interest income does not include $9.7 million of
interest earnings on the $551.0 million of currently deferring or
defaulted securities. Subsequent to December 31, 2008, we have
experienced two additional TruPS deferrals with an aggregate
principal amount of $50.0 million, and an additional $38.0 million
principal amount of TruPS deferring interest payments as of
December 31, 2008 have defaulted. The TruPS deferrals and defaults
described above have resulted in the over-collateralization tests
being triggered in all eight CDOs in which we hold equity
interests. The trigger of an over-collateralization test in a TruPS
CDO means that AFN, as a holder of equity securities, will not
receive current distributions of cash in respect of its equity
interests until sufficient debt is paid down in the CDOs to cure
the over-collateralization tests. Investments in Loans Loans
accounted for as held for investment are recorded at amortized
cost. Loans accounted for as held for sale are carried at fair
value, with changes in fair value recorded in the net change in
fair value of investments in debt securities and loans and
non-recourse indebtedness. The following table summarizes our
investments in loans as of December 31, 2008 (dollars in
thousands): Unpaid Unamortized Principal Premium/ Unrealized
Carrying Balance (Discount) Gain (Loss) Amount December 31, 2008:
5/1 Adjustable rate residential mortgages $609,994 $6,735 $-
$616,729 7/1 Adjustable rate residential mortgages 211,287 3,414 -
214,701 10/1 Adjustable rate residential mortgages 68,786 1,275 -
70,061 Commercial loan (1) 7,464 - - 7,464 Leveraged loans (2)
891,204 (9,946) (100,989) 780,269 Total $1,788,735 $1,478
$(100,989) $1,689,224 Weighted- Weighted- Average Average
Contractual Number Interest Maturity of Loans Rate Date December
31, 2008: 5/1 Adjustable rate residential mortgages 1,487 6.3% July
2036 7/1 Adjustable rate residential mortgages 488 6.6% Dec 2036
10/1 Adjustable rate residential mortgages 186 6.8% Sept 2036
Commercial loan (1) 1 21.0% - Leveraged loans (2) 438 6.5% Apr 2013
Total 2,600 6.4% (1) Weighted-average interest rate excludes
non-interest accruing commercial loan. (2) Includes approximately
$63.6 million at fair value (amortized cost $164.6 million) of
leveraged loans classified as held for sale as of December 31,
2008. As of December 31, 2008, the Company has transferred all of
the leveraged loans included in its warehouse facility with a third
party to the held for sale category. During the fourth quarter of
2008, the Company determined that it no longer had the intent to
hold these particular loans to maturity or for the foreseeable
future. The warehouse facility that provides short-term financing
for approximately $164.8 million of par value of leveraged loans is
scheduled to mature in May 2009. Prior to the May 2009 maturity
date, the Company does not expect that the warehouse lender will
offer us favorable refinancing terms or the ability to extend the
warehouse facility. If the securitization markets remain
effectively closed through the May 2009 maturity date, the Company
will likely lose the first loss cash that is deposited with the
warehouse lender in the amount of $39 million. Indebtedness The
following table summarizes our total indebtedness (including
recourse and non-recourse indebtedness) as of December 31, 2008
(dollars in thousands): Net Change in Fair Carrying Description
Amortized Cost Value (2) Amount December 31, 2008: Non-recourse
indebtedness: Trust preferred obligations $385,600 $(265,191)
$120,409 Securitized mortgage debt 844,764 - 844,764 CDO notes
payable (1) 8,449,072 (6,106,152) 2,342,920 Warehouse credit
facilities 126,623 - 126,623 Total non-recourse indebtedness
$9,806,059 $(6,371,343) $3,434,716 Recourse indebtedness: Junior
subordinated debentures $49,614 $- $49,614 Contingent convertible
debt 28,650 - 28,650 Total recourse indebtedness $78,264 $- $78,264
Total indebtedness $9,884,323 $(6,371,343) $3,512,980 Description
Current Weighted- Weighted- Average Average Interest Rate Interest
Contractual Terms Rate Maturity December 31, 2008: Non-recourse
indebtedness: Trust preferred obligations 2.9% to 8.7% 4.8% Oct
2036 Securitized mortgage debt 5.0% to 6.0% 5.7% Dec 2046 CDO notes
payable (1) 2.1% to 9.5% 3.3% Apr 2039 Warehouse credit facilities
3.8% 3.8% May 2009 Total non-recourse indebtedness Recourse
indebtedness: Junior subordinated 7.9% to 9.5% 8.8% Aug 2036
debentures Contingent convertible debt 7.6% 7.6% May 2027 Total
recourse indebtedness Total indebtedness (1) Excludes CDO notes
payable purchased by the Company which are eliminated in
consolidation. Carrying amount includes $1.6 billion of liabilities
at fair value. (2) Amounts reflect adjustment to fair value for
those debt obligations elected to be recorded at fair value under
SFAS No. 159. Recourse indebtedness refers to indebtedness that is
recourse to the general assets of AFN. During the three-month
period ended December 31, 2008, we repurchased and retired $32.5
million par value of our outstanding convertible debt securities
for $17.6 million. We realized a gain of $14.1 million on these
transactions, net of a $0.8 million write-off of related deferred
costs. During the twelve-month period ended December 31, 2008, we
repurchased and retired $111.4 million par value of our outstanding
convertible debt securities for $50.6 million. We realized a gain
of $58.0 million on these transactions, net of a $2.7 million
write-off of related deferred costs. As of the date of this
release, $28.7 million principal amount of our convertible debt
securities remains outstanding. Non-recourse indebtedness consists
of indebtedness of consolidated VIEs (i.e. CDOs, CLOs and other
securitization vehicles) which is recourse only to specific assets
pledged as collateral to the lenders. The creditors of each
consolidated VIE have no recourse to the general credit of AFN. As
of December 31, 2008, our maximum exposure to economic loss as a
result of our involvement with each VIE is the $460.9 million of
capital that we have invested in warehouse first-loss deposits and
the preference shares or debt of the CDO, CLO or other types of
securitization structures. None of the indebtedness shown in the
table above subjects AFN to potential margin calls for additional
pledges of cash or other assets. Liquidity As of December 31, 2008,
our consolidated financial statements include $86.0 million of
available, unrestricted cash and cash equivalents. Management has
evaluated our current and forecasted liquidity and continues to
monitor evolving market conditions. Future investment alternatives
and operating activities will continue to be evaluated against
anticipated current and longer term liquidity demands. The realized
tax losses that we have experienced during 2008, including those
resulting from the failure of IndyMac Bancorp and losses on MBS in
our Kleros Real Estate portfolio eliminated our taxable income for
the year ending December 31, 2008. Management will continue to
consider projections regarding our taxable income and liquidity
position and decisions regarding future dividends are subject to
the review and approval of our board of directors. On October 10,
2008, we were notified by the NYSE that we were not in compliance
with an NYSE continued listing standard applicable to our common
stock. The standard requires that the average closing price of any
listed security not fall below $1.00 per share for any consecutive
30 trading-day period. On October 15, 2008, we notified the NYSE of
our intent to cure this deficiency. Under the NYSE rules, we have
six months from the date of the NYSE notice to comply with the NYSE
minimum share price standard. If we are not compliant by that date,
our common stock will be subject to suspension and delisting by the
NYSE. After exploring different alternatives for curing the
deficiency and restoring compliance with the continued listing
standards, we currently expect to effectuate a 1 for 10 reverse
split of our common stock. Our common stock remains listed on the
NYSE under the symbol "AFN." The NYSE's continued listing standards
also require that our average market capitalization be at least $25
million over any 30 consecutive trading day period and that we
maintain our REIT status. On February 26, 2009, the NYSE submitted
to the SEC an immediately effective rule filing which suspends the
NYSE's $1 minimum price requirement on a temporary basis, initially
through June 30, 2009. Further, the filing also extends until the
same date the NYSE's current easing of the average global market
capitalization standard from $25 million to $15 million. In
addition to being delisted due to our failure to comply with any of
these continued listing standards, we will also likely be delisted
if we fail to meet any of the NYSE's other listing standards.
Common Stock Repurchase During the three-month and twelve-month
period ended December 31, 2008, we repurchased 112,800 and 742,396
shares of common stock for $0.1 million and $0.7 million, at a
weighted-average price of $1.02 and $1.00 per share, respectively.
Merger Agreement On February 20, 2009, AFN and Cohen Brothers, LLC
(which does business as Cohen & Company) entered into a
definitive merger agreement. AFN's Board of Directors and Cohen
& Company's Board of Managers each unanimously approved the
transaction. Cohen & Company will merge with a subsidiary of
AFN and will survive the merger as a subsidiary of AFN. In the
merger, members of Cohen & Company will have the option to
exchange each of their membership units in Cohen & Company for
either 0.57372 shares of AFN common stock, or 0.57372 replacement
units of membership interest in Cohen & Company which may be
exchanged into shares of AFN in the future. Holders of common stock
of AFN will continue to hold their shares of AFN. Subsequent to the
merger, AFN will continue to be a publicly traded entity and is
expected to operate as a C-Corp for tax purposes. Pursuant to the
merger agreement, AFN will complete a 1 for 10 reverse split of its
common stock. It is currently expected that former shareholders of
AFN will own 62.4% of the shares of AFN's common stock immediately
after the merger and former unit holders of Cohen & Company
will hold the balance; however, the actual percentages will not be
known until members of Cohen & Company have made their
elections to receive either AFN common stock or replacement units
of Cohen & Company. If all Cohen & Company membership
interests were to be converted into AFN shares in the future,
current AFN shareholders would own 38.5%, and former Cohen &
Company members would own 61.5%, of the combined company. Cohen
& Company will be treated as the acquirer for accounting
purposes. The transaction, which is expected to close during the
second half of 2009, is subject to a number of closing conditions,
including the receipt of third party consents and other conditions
set forth in the definitive merger agreement. In addition, the
transaction is subject to approval by the affirmative vote of a
majority of the votes cast by holders of AFN common stock, provided
that the number of votes cast on the matter is over 50% of the
votes entitled to be cast on the proposal. A meeting of AFN
stockholders to consider and vote on the transaction is expected to
be held in the second half of 2009. Conference Call As previously
announced, a conference call to discuss these financial results
with investors and analysts will be held on March 10, 2009 at 10:00
AM ET. Interested parties can access the live webcast of our
conference call by clicking on the webcast link on our homepage at
http://www.alescofinancial.com/. Those wishing to participate in
the conference call via telephone with operator assistance can dial
866-831-6272 or, for those calling from overseas, 617-213-8859, at
least ten minutes in advance of the scheduled time. A replay will
be available for two weeks at 888-286-8010, pass code 59323927.
About Alesco Financial Inc. Alesco Financial Inc. is a specialty
finance REIT headquartered in Philadelphia, Pennsylvania. Alesco
Financial Inc. is externally managed by Cohen & Company
Management, LLC, a subsidiary of Cohen & Company, an
alternative investment management firm, which, since 2001, has
provided financing to small and mid-sized companies in financial
services, real estate and other sectors. For more information,
please visit http://www.alescofinancial.com/. Forward-Looking
Statements Information set forth in this release contains
forward-looking statements, which involve a number of risks and
uncertainties. Alesco Financial Inc. cautions readers that any
forward-looking information is not a guarantee of future
performance and that actual results could differ materially from
those contained or implied in the forward-looking information. The
following factors, among others, could cause actual results to
differ from those set forth in the forward-looking statements: the
failure of Alesco Financial Inc. to successfully execute its
business plans or gain access to additional financing, continued
disruption in the U.S. credit markets generally and the mortgage
loan and CDO markets particularly, AFN's ability to timely
consummate the merger with Cohen & Company, the limited
availability of additional investment portfolios for future
acquisition, performance of existing investments, AFN's ability to
restore compliance with New York Stock Exchange (the "NYSE")
continued listing standards or, in the event that AFN is unable to
maintain its listing with the NYSE, its ability to comply with the
initial listing standards of the NYSE or another securities
exchange, continued qualification as a REIT and the cost of
capital. Additional factors that may affect future results are
contained in our filings with the SEC, which are available at the
SEC's web site http://www.sec.gov/ and Alesco Financial Inc.'s web
site, http://www.alescofinancial.com/. Alesco Financial Inc.
disclaims any obligation to update and revise statements contained
in these materials based on new information or otherwise.
Additional Information About the Merger and Where to Find It In
connection with the proposed merger, AFN will file with the
Securities and Exchange Commission, or the SEC, a registration
statement on Form S-4 which will include proxy statements of AFN
and Cohen & Company and a prospectus of AFN. STOCKHOLDERS ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS CAREFULLY AND IN ITS
ENTIRETY WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The definitive
proxy statement will be mailed to AFN's stockholders. In addition,
stockholders will be able to obtain the proxy statement/prospectus
and all other relevant documents filed by AFN with the SEC free of
charge at the SEC's website http://www.sec.gov/ or from Alesco
Financial Inc., Attn: Investor Relations, 2929 Arch Street, 17th
Floor, Philadelphia, PA 19104. Participants in the Solicitation AFN
and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders
of AFN in favor of the proposed merger. Information about the
directors and executive officers of AFN and their ownership of AFN
stock is set forth in AFN's proxy statement filed with the SEC on
April 29, 2008. Investors may obtain additional information
regarding the interests of such participants by reading the proxy
statement/prospectus for the proposed merger when it becomes
available. Stockholders may obtain these documents from the SEC or
AFN using the contact information above. Alesco Financial Inc.
Consolidated Statements of Income (In thousands, except share and
per share information) For the For the Three-Month Three-Month For
the For the Period Ended Period Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, 2008 2007 2008
2007 Net investment income (loss): Investment interest income
$117,042 $198,156 $554,042 $727,456 Investment interest expense
(102,509) (165,404) (439,835) (627,635) Provision for loan losses
(28,367) (6,704) (61,107) (16,218) Net investment income (loss)
(13,834) 26,048 53,100 83,603 Expenses: Related party management
compensation 3,932 4,704 19,585 17,316 General and administrative
3,831 3,354 14,581 11,864 Total expenses 7,763 8,058 34,166 29,180
Other income and expense: Interest and other income 4 2,507 3,910
18,488 Net change in fair value of investments in debt securities
and loans and non- recourse indebtedness (109,733) - 30,502 - Net
change in fair value of derivative contracts (170,307) 35,797
(242,082) 80,697 Credit default swap premiums - (1,611) (2,872)
(3,207) Gain (loss) on disposition of consolidated entities - 697
(5,558) 10,990 Gain on repurchase of debt 14,119 - 58,031 - Loss on
impairments and sales of assets (5,976) (775,585) (21,296)
(1,400,649) Loss before minority interest and benefit (provision)
for income taxes (293,490) (720,205) (160,431) (1,239,258) Minority
interest 60,088 (5,570) (10,479) (19,734) Loss before benefit
(provision) for income taxes (233,402) (725,775) (170,910)
(1,258,992) Benefit (provision) for income taxes 20,946 (3,502)
26,189 (2,328) Net loss $(212,456) $(729,277) $(144,721)
$(1,261,320) Loss per share-basic: Basic loss per share $(3.60)
$(12.31) $(2.43) $(22.48) Weighted-average shares outstanding-Basic
59,094,447 59,233,072 59,470,943 56,098,672 Loss per share-
diluted: Diluted loss per share $(3.60) $(12.31) $(2.43) $(22.48)
Weighted-average shares outstanding- Diluted 59,094,447 59,233,072
59,470,943 56,098,672 Distributions declared per common share $-
$0.31 $0.50 $1.23 Alesco Financial Inc. Consolidated Balance Sheets
(In thousands, except share and per share information) As of As of
December 31, December 31, 2008 2007 Assets Investments in debt
securities and security-related receivables (including amounts at
fair value of $2,079,750 and $5,888,650, respectively) $2,079,750
$6,628,991 Investments in loans Residential mortgages 901,491
1,047,195 Commercial mortgages 7,464 7,332 Leveraged loans
(including amounts held for sale of $63,601 and $0, respectively)
780,269 836,953 Loan loss reserve (68,428) (18,080) Total
investments in loans, net 1,620,796 1,873,400 Cash and cash
equivalents 86,035 80,176 Restricted cash and warehouse deposits
54,059 95,476 Accrued interest receivable 31,435 49,806 Other
assets 62,856 207,527 Total assets $3,934,931 $8,935,376
Liabilities and stockholders' equity (deficit) Indebtedness Trust
preferred obligations (including amounts at fair value of $120,409
and $0, respectively) $120,409 $382,600 Securitized mortgage debt
844,764 959,558 CDO notes payable (including amounts at fair value
of $1,647,590 and $0, respectively) 2,342,920 9,409,027 Warehouse
credit facilities 126,623 155,984 Recourse indebtedness 78,264
189,614 Total indebtedness 3,512,980 11,096,783 Accrued interest
payable 30,530 54,380 Related party payable 4,880 2,800 Derivative
liabilities 266,984 123,316 Other liabilities 12,165 38,092 Total
liabilities 3,827,539 11,315,371 Minority interests 43,048 19,543
Stockholders' equity (deficit) Preferred stock, $0.001 par value
per share, 50,000,000 shares authorized, no shares issued and
outstanding - - Common stock, $0.001 par value per share,
100,000,000 shares authorized, 60,171,324 and 60,548,032 issued and
outstanding, including 985,810 and 1,228,234 unvested restricted
share awards, respectively 59 59 Additional paid-in-capital 482,382
481,850 Accumulated other comprehensive loss (14,223) (1,545,464)
Accumulated deficit (403,874) (1,335,983) Total stockholders'
equity (deficit) 64,344 (2,399,538) Total liabilities and
stockholders' equity (deficit) $3,934,931 $8,935,376 Investors:
John Longino Chief Financial Officer 215-701-8952 Media: Joseph Kuo
Kekst and Company 212-521-4863 DATASOURCE: Alesco Financial Inc.
CONTACT: Investors: John Longino, Chief Financial Officer, Alesco
Financial Inc., +1-215-701-8952, ; Media: Joseph Kuo, Kekst and
Company, +1-212-521-4863 Web Site: http://www.alescofinancial.com/
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