PHILADELPHIA, Aug. 17 /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 six-months ended June 30, 2009. AFN reported GAAP
net income attributable to common stockholders for the three-months
ended June 30, 2009 of $373.7 million, or $6.21 per diluted common
share, as compared to net loss attributable to common stockholders
of ($81.2) million, or ($1.36) per diluted common share for the
three-months ended June 30, 2008. AFN's net income for the
three-month period ended June 30, 2009 was primarily attributable
to the operations of consolidated securitization entities and
includes net changes in the fair value of financial instruments of
$577.4 million, partially offset by loan loss provisions of ($49.7)
million. During the three-months ended June 30, 2009, these amounts
were reduced by $168.2 million of net income attributable to
noncontrolling interests associated with our consolidated CDO
entities. AFN reported GAAP net income attributable to common
stockholders for the six-months ended June 30, 2009 of $337.8
million, or $5.61 per diluted common share, as compared to net
income attributable to common stockholders of $3.7 million or $0.06
per diluted common share for the six-months ended June 30, 2008.
AFN's net income for the six-month period ended June 30, 2009 was
primarily attributable to the operations of consolidated
securitization entities and includes net changes in the fair value
of financial instruments of $579.5 million, partially offset by
loan loss provisions of ($100.2) million. During the six-months
ended June 30, 2009, these amounts were reduced by $161.1 million
of net income attributable to noncontrolling interests associated
with our consolidated CDO entities. Analysis of GAAP Equity As of
June 30, 2009, our consolidated financial statements include $88.9
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, June 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.
Net Change in Cash and Cash Equivalents Allocated Parent for Three
Months Stockholders' Equity Ended June 30, 2009 (C) (Amounts in
thousands) as of June 30, 2009 Net Assets not Included in
Consolidated VIEs: Investments in TruPS debt securities $6,604 $186
Investments in residential and commercial loans 8,568 493 Cash and
cash equivalents 88,922 99 Other assets and liabilities, net (A)
2,552 (1,856)(D) Recourse indebtedness (A) (76,214) (2,035) Net
Assets of Consolidated VIEs (B): Investments in TruPS CDOs $412,957
- Investments in leveraged loan CLOs and warehouse facility 1,698
2,842(E) Investment in Kleros Real Estate (MBS) CDOs - - Investment
in residential loan mortgage loan securitization (40,462) 1,527
Total $404,625 $1,256 (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, $38.5
million in a leveraged loan warehouse facility, $45.6 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 June 30, 2009, the Company
estimates the aggregate fair value of its investments in preference
shares and subordinated interests of consolidated VIEs to be
approximately $3.3 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 June 30, 2009: Cash and cash
equivalents, at March 31, 2009 $87,666 Net change in cash and cash
equivalents 1,256 Cash and cash equivalents, at June 30, 2009
$88,922 ======= (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 $2.8 million of distributions from investments in
CLOs. Subsequent to June 30, 2009, we experienced an interest
diversion test failure in Emporia Preferred Funding II, Ltd. The
failure was primarily attributable to an increase in defaulted
assets collateralizing the CLO. As a result of the interest
diversion test failure in Emporia Preferred Funding II, Ltd., the
Company did not receive any of its quarterly distribution in July
2009, and assuming no additional defaults or significant credit
downgrades the Company does not expect to receive its quarterly
cash distribution for several quarters. 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 periods. We
therefore have until September 13, 2009 to become compliant with
the NYSE minimum share price standard. 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 June 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 Loan CLOs
and Residential Kleros TruPS Warehouse Mortgage Real Estate CDOs
Facility Securitization (MBS) CDOs Total Consolidated VIE assets
$1,942,348 $816,356 $753,104 $433,345 $3,945,153 Consolidated VIE
liabilities 1,323,728 816,761 793,566 433,345 3,367,400
Noncontrolling interests in consolidated VIE subsidiaries 205,663
(2,103) - - 203,560 Net assets attributable to common stockholders
$412,957 $1,698 $(40,462) $ - $374,193 Leveraged Loan CLOs and
Residential Kleros TruPS Warehouse Mortgage Real Estate CDOs
Facility Securitization (MBS) CDOs Total Maximum exposure to
loss:(1) Debt and equity interests in CDOs, CLOs and other
securitiz- ation vehicles $218,570 $48,100 $45,566 $90,000 $402,236
Warehouse facility - 38,475 - - 38,475 Total maximum exposure to
loss $218,570 $86,575 $45,566 $90,000 $440,711 (1) Represents our
total investments in VIEs, and is not adjusted for losses incurred
to date. As of June 30, 2009, consolidated VIEs represent $374.2
million of net assets attributable to common stockholders
(excluding non-controlling interests). For the three and six-month
periods ended June 30, 2009, net income from consolidated VIEs
included in the Company's net income attributable to common
stockholders was $376.5 million and $346.2 million, respectively.
As of June 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 $3.3 million. For
the three and six months ended June 30, 2009, the Company received
$4.4 million and $8.8 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 three-months ended June 30, 2009, changes in
market conditions significantly impacted the degree of this
correlation. Changes in market conditions during the quarter had a
significant positive impact on the pricing of credit risk
associated with our individual TruPS assets. The change in market
perceptions regarding the benefits or risks associated with our
investments in TruPS assets did not have a significant impact on
the markets 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 therefore, the
changes in the fair value of our TruPS assets were significantly
greater than the changes in fair value of our TruPS related CDO
notes payable during the three-months ended June 30, 2009. As a
result, our GAAP parent stockholders' equity includes $413 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 June 30, 2009.
Identification of Material Weakness in Internal Controls In July
2009 we identified certain computational errors in our internal
valuation models which we utilized, in part, to derive the fair
value of our investments used in the preparation of our financial
statements. Upon identifying these errors, we undertook a broad
review of our valuation processes and methodologies. After
performing this additional work, we determined that these errors
did not result in a need to modify the December 31, 2008 financial
statements. However, we determined that there were deficiencies in
our internal controls over the development and validation of the
valuation models which resulted in a material weakness. To
remediate the material weakness in internal control over financial
reporting described above, management enhanced its controls over
financial reporting by completing the following remediation steps:
-- Corrected the computational errors in our internal valuation
models; and -- Enhanced our internal valuation process to include
additional validation procedures, including more formal review and
comparison of internal valuation model results to observable market
data. We believe that the actions described above and the resulting
improvements in controls will strengthen our internal control over
financial reporting relating to our valuation process. Conference
Call A conference call to discuss these financial results with
investors and analysts will be held on August 18, 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 30705114.
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.
Additional Information About the Merger and Where to Find It In
connection with the proposed merger, AFN will file with 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 annual report on Form 10-K/A filed with the SEC on April 30,
2009. 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. Investors: Media: John
Longino Joseph Kuo Chief Financial Officer Kekst and Company
215-701-8952 212-521-4863 Alesco Financial Inc. Consolidated
Statements of Income (Loss) (Unaudited and in thousands, except
share and per share information) For the For the Three- Six- For
the Month For the Month Three- Period Six- Period Month Ended Month
Ended Period June 30, Period June 30, Ended 2008 Ended 2008 June 30
(As June 30, (As 2009 Adjusted) 2009 Adjusted) Net investment
income (loss): Investment interest income $90,382 $137,520 $190,265
$311,415 Investment interest expense (53,403) (101,588) (112,355)
(241,372) Provision for loan losses (49,696) (7,891) (100,154)
(15,455) Net investment income (loss) (12,717) 28,041 (22,244)
54,588 Expenses: Related party management compensation 3,389 4,197
6,842 8,942 General and administrative 4,242 3,545 8,638 7,160
Total expenses 7,631 7,742 15,480 16,102 Other income and expense:
Interest and other income 184 1,131 592 2,625 Net change in fair
value of investments in debt securities and loans and non-recourse
indebtedness 540,908 (132,651) 547,785 70,208 Net change in fair
value of derivative contracts 36,492 37,055 31,739 (45,808) Credit
default swap premiums - (1,536) - (2,872) Impairments on other
investments and intangible assets (2,670) (4,286) (4,748) (12,844)
Loss on disposition of consolidated entities - (5,558) - (5,558)
Net realized loss on sale of assets (4,281) (1,742) (16,126)
(3,191) Earnings (loss) before benefit (provision) for income taxes
550,285 (87,288) 521,518 41,046 Benefit (provision) for income
taxes (8,380) 2,975 (22,568) 3,402 Net income (loss) 541,905
(84,313) 498,950 44,448 Less: Net (income) loss attributable to
noncontrolling interests (168,240) 3,109 (161,118) (40,765) Net
income (loss) attributable to common stockholders $373,665
$(81,204) $337,832 $3,683 Earnings (loss) per share-basic: Basic
earnings (loss) per share $6.21 $(1.36) $5.61 $0.06
Weighted-average shares outstanding- Basic 60,169,240 59,512,594
60,170,794 60,550,247 Earnings (loss) per share-diluted: Diluted
earnings (loss) per share $6.21 $(1.36) $5.61 $0.06
Weighted-average shares outstanding- Diluted 60,169,240 59,512,594
60,170,794 60,550,247 Distributions declared per common share $ -
$0.25 $ - $0.50 Alesco Financial Inc. Consolidated Balance Sheets
(Unaudited and in thousands, except share and per share
information) As of As of December 31, June 30, 2008 2009 (As
Adjusted) Assets Investments in debt securities and
security-related receivables, at fair value $2,349,220 $2,079,750
Investments in loans Residential mortgages 839,668 901,491
Commercial mortgages 7,464 7,464 Leveraged loans (including amounts
held for sale at fair value of $105,452 and $63,601, respectively)
808,728 780,269 Loan loss reserve (158,512) (68,428) Total
investments in loans, net 1,497,348 1,620,796 Cash and cash
equivalents 88,922 86,035 Restricted cash and warehouse deposits
69,668 54,059 Accrued interest receivable 20,901 31,435 Deferred
tax asset 3,676 25,036 Other assets 27,855 37,820 Total assets
$4,057,590 $3,934,931 Liabilities and equity Indebtedness Trust
preferred obligations, at fair value $138,203 $120,409 Securitized
mortgage debt 789,598 844,764 CDO notes payable (including amounts
at fair value of $1,401,422 and $1,647,590, respectively) 2,106,752
2,342,920 Warehouse credit facilities 106,582 126,623 Recourse
indebtedness 77,703 77,656 Total indebtedness 3,218,838 3,512,372
Accrued interest payable 19,682 30,530 Related party payable 6,512
4,880 Derivative liabilities 191,087 266,984 Other liabilities
13,286 12,165 Total liabilities 3,449,405 3,826,931 Equity
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,
60,169,240 and 60,171,324 issued and outstanding, including 659,076
and 985,810 unvested restricted share awards, respectively 60 59
Additional paid-in-capital 484,934 484,612 Accumulated other
comprehensive loss (12,705 ) (14,223 ) Accumulated deficit (67,664)
(405,496 ) Total parent stockholders' equity 404,625 64,952
Noncontrolling interests in subsidiaries 203,560 43,048 Total
equity 608,185 108,000 Total liabilities and equity $4,057,590
$3,934,931 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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