PHILADELPHIA, Nov. 9 /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 nine-months ended September 30, 2009. AFN reported
GAAP net loss attributable to common stockholders for the
three-months ended September 30, 2009 of ($197.1) million, or
($3.31) per diluted common share, as compared to net income
attributable to common stockholders of $62.4 million, or $1.02 per
diluted common share for the three-months ended September 30, 2008.
AFN's net loss for the three-month period ended September 30, 2009
was primarily attributable to the operations of consolidated
securitization entities and includes net changes in the fair value
of financial instruments of ($226.2) million, net realized losses
on sale of assets of ($38.5) million, and loan loss provisions of
($34.7) million. During the three-months ended September 30, 2009,
these amounts include $75.1 million of net loss attributable to
noncontrolling interests associated with our consolidated CDO
entities. AFN reported GAAP net income attributable to common
stockholders for the nine-months ended September 30, 2009 of $140.7
million, or $2.34 per diluted common share, as compared to net
income attributable to common stockholders of $66.1 million or
$1.09 per diluted common share for the nine-months ended September
30, 2008. AFN's net income for the nine-month period ended
September 30, 2009 was primarily attributable to the operations of
consolidated securitization entities and includes net changes in
the fair value of financial instruments of $353.3 million,
partially offset by net realized losses on sale of assets of
($54.7) million and loan loss provisions of ($134.9) million.
During the nine-months ended September 30, 2009, these amounts
include $86.0 million of net income attributable to noncontrolling
interests associated with our consolidated CDO entities. Analysis
of GAAP Equity As of September 30, 2009, our consolidated financial
statements include $90.1 million of available, unrestricted cash
and cash equivalents. The following table shows the components of
our stockholders' equity and the net change in cash and cash
equivalents attributable to such components, in each case as
determined in accordance with GAAP, as of, and for the three months
ended, September 30, 2009. The table is divided between the
components of our stockholders' equity which are attributable to
our assets and liabilities which are not assets and liabilities of
consolidated variable interest entities ("VIEs"), and those which
are assets and liabilities of consolidated VIEs. The assets of
consolidated VIEs are pledged to satisfy the liabilities of the
consolidated VIEs. The liabilities of our consolidated VIEs are
non-recourse to us, but similarly we have no rights to use any of
the proceeds of the assets held by consolidated VIEs to satisfy any
of our recourse liabilities. The components of our stockholders'
equity attributable to our investments in consolidated VIEs are
determined in accordance with GAAP (under which we consolidate all
of the assets and liabilities of the VIEs) and do not reflect the
fair value of the interests in the consolidated VIEs owned by us.
The Net Change in Cash and Cash Equivalents column reflects the
sources and uses of cash during the period with respect to each
component of our stockholders' equity. Allocated Net Change in
Parent Cash and Cash Stockholders' Equivalents for Equity as of
Three-Months September Ended September (Amounts in thousands) 30,
2009 30, 2009 ( C ) ------------- --------------- Net Assets not
Included in Consolidated VIEs: Investments in TruPS debt securities
$6,142 $157 Investments in residential and commercial loans 8,508
28 Cash and cash equivalents 90,122 86 Other assets and
liabilities, net ( A ) (1,804) (1,508)( D ) Recourse indebtedness (
A ) (76,237) (910) Net Assets of Consolidated VIEs ( B ):
Investments in TruPS CDOs $249,022 - Investments in leveraged loan
CLOs and warehouse facility (10,911) 2,096 ( E ) Investment in
Kleros Real Estate (MBS) CDOs - - Investment in residential loan
mortgage loan securitization (56,393) 1,251 -------------
--------------- Total $208,449 $1,200 ============= ===============
( A ) Recourse indebtedness 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. ( B ) We currently
hold the following notional amounts of preference shares or
subordinated interests in consolidated VIEs: $218.6 million in
TruPS CDOs, $48.1 million in leveraged loan CLOs, $36.5 million in
a whole-loan mortgage securitization and $90 million in Kleros Real
Estate CDOs. The Company's stockholders' equity includes the
effects of accounting for each of the underlying assets and
liabilities of our consolidated VIEs as separate units of account.
However, if for accounting purposes the Company were to use the
notional amounts of preference shares or subordinated interests
that it directly owns as the unit of account, its net asset value
could be materially different. As of September 30, 2009, the
Company estimates the aggregate fair value of its investments in
preference shares and subordinated interests of consolidated VIEs
to be approximately $2.9 million. ( C ) Primary sources and uses of
cash of consolidated VIEs include interest income on investments
and interest expense on the related debt. The Company's primary
sources of cash are distributions from investments in consolidated
VIEs, interest on cash deposits, and interest income on or proceeds
from the sale of debt securities and mortgage loans held directly.
The Company's primary uses of cash are recourse debt service,
payment of general and administrative expenses, and additional
investments. The following reconciles the change in cash and cash
equivalents during the three-months ended September 30, 2009: Cash
and cash equivalents, at June 30, 2009 $88,922 Net change in cash
and cash equivalents 1,200 ------- Cash and cash equivalents, at
September 30, 2009 $90,122 ======= ( D ) Amount relates to payment
of general and administrative expenses incurred directly by the
Company. General and administrative expenses incurred and paid by
consolidated VIEs reduce the Company's net distributions, if any,
from these consolidated VIEs and are not paid directly by the
Company. ( E ) Amount includes $2.1 million of distributions from
investments in a CLO. As previously disclosed, we experienced an
overcollateralization failure on the Class D and E Notes of Emporia
Preferred Funding II, Ltd., and a partial interest diversion test
failure on the Class E Notes of Emporia Preferred Funding III, Ltd.
These failures were primarily attributable to an increase in
defaulted assets collateralizing the CLOs. As a result of these
failures, the Company did not receive any of its quarterly
distribution in October 2009 on Emporia Preferred Funding II, Ltd,
and the Company received a partial distribution from Emporia
Preferred Funding III, Ltd. Assuming no additional defaults or
significant credit downgrades, the Company does not expect to
receive its quarterly cash distribution on Emporia Preferred
Funding II, Ltd. for several quarters. In the event of additional
defaults or credit downgrades, Emporia Preferred Funding III, Ltd.
may not provide cash distributions to the Company in future
periods. During the three months ended September 30, 2009, all of
the leveraged loans that were included in the Company's warehouse
facility were liquidated. As a result of the liquidation of the
collateral, the Company recorded a $38.4 million realized loss
equal to the amount of first loss cash that it had deposited with
the warehouse lender, which was the maximum amount of loss that the
Company was exposed to from the warehouse facility. Liquidity
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.
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, the Company was notified
by the NYSE that it was not in compliance with an NYSE continued
listing standard applicable to its 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, the Company notified the NYSE of its
intent to cure this deficiency. After exploring different
alternatives for curing the deficiency and restoring compliance
with the continued listing standards, the Company currently expects
to effectuate a 1 for 10 reverse stock split of the outstanding
shares of its common stock. Under the NYSE rules, the Company has
six months from the date of the NYSE notice to comply with the NYSE
minimum share price standard. If the Company is not compliant by
that date, its common stock will be subject to suspension and
delisting by the NYSE. However, on February 26, 2009, the NYSE
granted NYSE-listed companies a reprieve from the NYSE's $1 minimum
price requirement until June 30, 2009, which reprieve was
subsequently extended for an additional month through July 31,
2009. In addition, the NYSE permanently decreased its
market-capitalization standard to $15 million for listed companies,
which previously required that average market capitalization of a
NYSE-listed company be at least $25 million over any 30 consecutive
trading day period. Our six month cure period was set to expire on
September 13, 2009. On September 4, 2009, the NYSE notified AFN
that the NYSE would further extend the cure period until the AFN
2009 annual meeting of stockholders. If we fail to meet any of the
NYSE's other listing standards, however, we may be delisted for
failing to comply with the continued listing standards. Involvement
in Variable Interest Entities The following table presents
information as of September 30, 2009 with respect to how the
Company's involvement with VIEs affects the Company's consolidated
financial position, financial performance and cash flows. Leveraged
Residential Kleros TruPS Loan Mortgage Real Estate CDOs CLOs
Securitization (MBS) CDOs Total --------- --------- --------------
---------- --------- Consolidated VIE assets $1,883,602 $690,127
$712,973 $493,270 $3,779,972 Consolidated VIE liabilities 1,498,655
708,397 769,366 493,270 3,469,688 Noncontrolling interests in
consolidated VIE subsidiaries 135,925 (7,359) -- -- 128,566
--------- --------- -------------- --------- ---------- Net assets
attributable to common stockholders $249,022 $(10,911) $(56,393)
$-- $181,718 ========= ========= ============== =========
========== As of September 30, 2009, consolidated VIEs represent
$181.7 million of net assets attributable to common stockholders
(excluding non-controlling interests). For the three and nine-month
periods ended September 30, 2009, net income (loss) from
consolidated VIEs included in the Company's net income (loss)
attributable to common stockholders was ($190.1) million and $156.1
million, respectively. As of September 30, 2009, the Company
estimates that the fair value of the Company's investments in the
preference shares and subordinated interests of consolidated VIEs
is approximately $2.9 million. For the three and nine months ended
September 30, 2009, the Company received $3.3 million and $12.1
million in cash distributions from consolidated VIE entities. Our
consolidated TruPS assets serve as the sole source of collateral
and cash flows for the TruPS CDO notes payable and trust preferred
obligations. As a result, the Company generally expects that there
will be significant correlation between its fair value estimates of
the CDO notes payable and its fair value estimates for the
associated TruPS assets. This expected price correlation between
the underlying assets and the CDO notes payable was consistent with
what the Company had historically experienced and observed in the
market. However, during the nine months ended September 30, 2009,
changes in market conditions significantly impacted the degree of
this correlation with respect to TruPS assets and notes payable.
Changes in market conditions during the nine months ended September
30, 2009 had a significant positive impact on the pricing of credit
risk associated with our individual TruPS investments. The change
in market perceptions regarding the benefits or risks associated
with our investments in TruPS assets did not have the same impact
on the market's perception regarding the credit risk and other
market risks of our CDO notes payable. As a result, the correlation
of the changes in fair value of our TruPS assets and CDO notes
payable was not consistent with our historical experience and, the
increases in the fair value of our TruPS assets were significantly
greater than the increases in fair value of our TruPS related CDO
notes payable during the nine months ended September 30, 2009.
During the three months ended September 30, 2009, the fair value of
the TruPS related CDO notes payable increased by $180.2 million due
to improvements in market perceptions relating to the most senior
classes of TruPS related CDO notes payable. During the same period,
the fair value of the TruPS assets decreased by $55.2 million due
to continued deferral and default activity and market perceptions
regarding increased credit risk of the non-investment grade TruPS
assets. During the three months ended September 30, 2009, the net
impact of the changes in fair value of our TruPS assets and TruPS
related CDO notes payable resulted in a $163.9 million decrease to
total parent stockholders' equity. As of September 30, 2009, our
GAAP parent stockholders' equity includes $249 million of equity
relating to our consolidated TruPS CDOs. However, we estimate that
our direct investment in the preference shares of the TruPS CDOs
has little to no value as of September 30, 2009. 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 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 Securities and Exchange
Commission (the "SEC"), which are available at the SEC's web site
at 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. IMPORTANT
INFORMATION AND WHERE TO FIND IT AFN filed with the Securities and
Exchange Commission (the "SEC") a registration statement on Form
S-4, containing a proxy statement/prospectus in connection with the
proposed merger with Cohen Brothers, LLC ("Cohen & Company"),
which was announced on February 20, 2009. The registration
statement has become effective. INVESTORS ARE URGED TO READ THE
PROXY STATEMENT/PROSPECTUS CAREFULLY AND IN ITS ENTIRETY BECAUSE IT
CONTAINS IMPORTANT INFORMATION ABOUT AFN, COHEN & COMPANY AND
THE PROPOSED MERGER BETWEEN THE TWO COMPANIES. A definitive proxy
statement/prospectus will be mailed to AFN's stockholders on or
about November 9, 2009. In addition, AFN's stockholders may 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.
AFN and its directors and executive officers may be deemed to be
participants in the solicitation of proxies in connection with the
proposed merger. Information about AFN's directors and executive
officers and their ownership of AFN's stock is set forth in the
proxy statement/prospectus relating to the merger. Additional
information regarding such individuals who may, under the rules of
the SEC, be considered to be participants in the solicitation of
proxies in connection with the merger is also set forth in the
proxy statement/prospectus. Alesco Financial Inc. Consolidated
Statements of Income (Loss) (Unaudited and in thousands, except
share and per share information) For the For the For the
Three-Month For the Nine-Month Three-Month Period Ended Nine-Month
Period Ended Period Ended September Period Ended September
September 30, 2008 September 30, 2008 30, 2009 (As Adjusted) 30,
2009 (As Adjusted) ------------ ------------ ------------
------------ Net investment income (loss): Investment interest
income $81,214 $125,585 $271,480 $436,999 Investment interest
expense (42,853) (95,954) (155,209) (337,326) Provision for loan
losses (34,729) (14,764) (134,883) (32,739) ------------
------------ ------------ ------------ Net investment income (loss)
3,632 14,867 (18,612) 66,934 ------------ ------------ ------------
------------ Expenses: Related party management compensation 3,263
6,711 10,105 15,653 General and administrative 3,528 3,591 12,166
10,750 ------------ ------------ ------------ ------------ Total
expenses 6,791 10,302 22,271 26,403 Other income and expense:
Interest and other income 116 1,282 709 3,907 Net change in fair
value of investments in debt securities and loans and non-recourse
indebtedness (190,531) 70,028 357,254 140,236 Net change in fair
value of derivative contracts (35,667) (25,967) (3,928) (71,775)
Credit default swap premiums - - - (2,872) Impairments on other
investments and intangible assets (743) (1,533) (5,491) (14,378)
Loss on disposition of consolidated entities - - - (5,558) Gain on
repurchase of debt - 42,289 - 42,289 Net realized loss on sale of
assets (38,547) (272) (54,674) (943) ------------ ------------
------------ ------------ Earnings (loss) before benefit
(provision) for income taxes (268,531) 90,392 252,987 131,437
Benefit (provision) for income taxes (3,676) 1,841 (26,244) 5,243
------------ ------------ ------------ ------------ Net income
(loss) (272,207) 92,233 226,743 136,680 Less: Net (income) loss
attributable to noncontrolling interests 75,079 (29,802) (86,038)
(70,567) ------------ ------------ ------------ ------------ Net
income (loss) attributable to common stockholders $(197,128)
$62,431 $140,705 $66,113 ============ ============ ============
============ Earnings (loss) per share-basic: Basic earnings (loss)
per share $(3.31) $1.02 $2.34 $1.09 ============ ============
============ ============ Weighted-average shares outstanding-Basic
59,574,930 60,950,796 60,169,483 60,607,616 ============
============ ============ ============ Earnings (loss) per
share-diluted: Diluted earnings (loss) per share $(3.31) $1.02
$2.34 $1.09 ============ ============ ============ ============
Weighted-average shares outstanding- Diluted 59,574,930 60,950,796
60,169,483 60,607,616 ============ ============ ============
============ Distributions declared per common share $- $- $- $0.50
============ ============ ============ ============ Alesco
Financial Inc. Consolidated Balance Sheets (Unaudited and in
thousands, except share and per share information) As of As of
December 31, 2008 September 30, 2009 (As Adjusted)
------------------ ----------------- Assets Investments in debt
securities and security-related receivables, at fair value
$2,354,772 $2,079,750 Investments in loans Residential mortgages
803,618 901,491 Commercial mortgages 7,464 7,464 Leveraged loans
(including amounts held for sale at fair value of $0 and $63,601,
respectively) 707,873 780,269 Loan loss reserve (179,243) (68,428)
------------------ ----------------- Total investments in loans,
net 1,339,712 1,620,796 Cash and cash equivalents 90,122 86,035
Restricted cash and warehouse deposits 59,165 54,059 Accrued
interest receivable 15,007 31,435 Deferred tax asset - 25,036 Other
assets 30,585 37,820 ------------------ ----------------- Total
assets $3,889,363 $3,934,931 ================== =================
Liabilities and equity Indebtedness Trust preferred obligations, at
fair value $137,066 $120,409 Securitized mortgage debt 765,521
844,764 CDO notes payable (including amounts at fair value of
$1,627,122 and $1,647,590, respectively) 2,332,452 2,342,920
Warehouse credit facilities - 126,623 Recourse indebtedness 77,726
77,656 ------------------ ----------------- Total indebtedness
3,312,765 3,512,372 Accrued interest payable 16,735 30,530 Related
party payable 7,625 4,880 Derivative liabilities 202,691 266,984
Other liabilities 12,532 12,165 ------------------
----------------- Total liabilities 3,552,348 3,826,931 Equity
Preferred stock, $0001 par value per share, 50,000,000 shares
authorized, no shares issued and outstanding - - Common stock,
$0001 par value per share, 100,000,000 shares authorized,
60,151,949 and 60,171,324 issued and outstanding, including 499,918
and 985,810 unvested restricted share awards, respectively 60 59
Additional paid-in-capital 485,126 484,612 Accumulated other
comprehensive loss (11,946) (14,223) Accumulated deficit (264,791)
(405,496) ------------------ ----------------- Total parent
stockholders' equity 208,449 64,952 Noncontrolling interests in
subsidiaries 128,566 43,048 ------------------ -----------------
Total equity 337,015 108,000 ------------------ -----------------
Total liabilities and equity $3,889,363 $3,934,931
================== ================= Investors: Media: John Longino
Joseph Kuo Chief Financial Officer Kekst and Company 215-701-8952
212-521-4863 DATASOURCE: Alesco Financial Inc. CONTACT: Investors,
John Longino, Chief Financial Officer, +1-215-701-8952, ; or Media,
Joseph Kuo, Kekst and Company, +1-212-521-4863 Web Site:
http://www.alescofinancial.com/
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