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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 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 www.sec.gov and Alesco Financial Inc.'s web site, 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 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
info@alescofinancial.com
SOURCE Alesco Financial Inc.
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