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.
