AFN reported a GAAP net loss for the three-months ended March 31, 2009 of ($35.8) million, or ($0.60) per diluted common share, as compared to net income of $84.9 million, or $1.40 per diluted common share for the three-months ended March 31, 2008. AFN's net loss for the three-month period ended March 31, 2009 included ($50.5) million in loan loss provisions on our residential mortgage and leveraged loan portfolios, partially offset by net investment income generated from our investment portfolio.

Liquidity and Equity Summary

As of March 31, 2009, our consolidated financial statements include $87.7 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, March 31, 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                                   Allocated Parent       Cash and Cash                                 Stockholders' Equity    Equivalents for                                         as of          Three Months Ended                                     March 31, 2009     March 31, 2009 (C)     (amounts in thousands)      Net Assets not Included in      Consolidated VIEs:     Investments in TruPS      debt securities                      $5,790               $200     Investments in residential and      commercial loans                      8,876                304     Cash and cash equivalents             87,666                193     Other assets and      liabilities, net (A)                  3,863             (2,583) (D)     Recourse indebtedness (A)            (76,188)              (949)       Net Assets of      Consolidated VIEs (B):     Investments in TruPS CDOs             $4,935                  -     Investments in      leveraged loan CLOs      and warehouse facility                1,203              2,819 (E)     Investment in Kleros      Real Estate (MBS) CDOs                    -                  -     Investment in residential loan      mortgage loan securitization         (6,137)             1,647      Total                                $30,008             $1,631     (A) 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.    (B) We currently hold the following notional amounts of preference       shares or subordinated interests in consolidated VIEs: $218.5       million in TruPS CDOs, $48 million in leveraged loan CLOs, $38.5       million in a leveraged loan warehouse facility, $54.5 million in       a whole-loan mortgage securitization and $90 million in Kleros       Real Estate CDOs.  As of March 31, 2009, the Company estimated the       aggregate fair value of its investments in preference shares and       subordinated interests of consolidated VIEs to be approximately       $4.6 million.    (C) The Company's primary sources of cash are interest income on debt       securities, cash deposits and mortgage loans, distributions from       investments in consolidated VIEs (such as CDOs, CLOs and mortgage       securitization) and proceeds from the sale of assets.  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 March 31, 2009:            Cash and cash equivalents, at the beginning            of the period                                          $86,035           Net change in cash and cash equivalents                   1,631           Cash and cash equivalents, at the end of the period     $87,666    (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 $2.4 million of distributions from investments in       CLOs, $1.8 million of distributions from an investment in a       leveraged loan warehouse facility, and is partially reduced by $1.4       million of additional contributions to the leveraged loan warehouse       facility during the three-months ended March 31, 2009.  The leveraged       loan warehouse facility is currently in default and all principal and       interest collections are being used to amortize the warehouse credit       facility debt.  Subsequent to March 31, 2009, we experienced a partial       failure of an interest diversion test in our Emporia II CLO, which       resulted in a reduction to our quarterly cash distribution from the       Emporia II CLO.  The partial failure was primarily attributable to the       recent increase in defaulted assets collateralizing the CLO.  The       interest diversion test was cured in April 2009; however, the current       state of the credit markets and the economy in general increases the       likelihood of defaults and ratings agency downgrades on the underlying       collateral of our CLOs.   

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 New York Stock Exchange (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. In addition, the NYSE extended until June 30, 2009 the temporary lowering of its market-capitalization standard to $15 million for listed companies, which generally requires that average market capitalization of a NYSE-listed company be at least $25 million over any 30 consecutive trading day period. We therefore have until August 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.

   Investment Portfolio Summary    Investments in Debt Securities   

The following table summarizes our investments in debt securities as of March 31, 2009 (dollars in thousands):

                            Cumulative                        Weighted-                            Net Change   Estimated  Weighted   Average   Investment    Amortized   in Fair       Fair      Average   Years to   Description     Cost       Value        Value     Coupon    Maturity                                (dollars in thousands)   TruPS and    subordinated    debentures    and security-    related    receivables $5,532,009 $(4,136,994) $1,395,015     4.7%      27.4    MBS           2,030,142  (1,619,054)    411,088     2.4%       6.9    Total        $7,562,151$ (5,756,048) $1,806,103     4.1%      21.9  

Subsequent to the adoption of Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," on January 1, 2008, all of the Company's investments in debt securities are classified as trading securities. 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 March 31, 2009, the aggregate principal amount of investments in the 46 TruPS investments that have defaulted or are currently deferring interest payments is $726.5 million, representing approximately 14.1% of our combined TruPS portfolio. As of March 31, 2009, $307.5 million of defaulted securities have been completely written off in our consolidated financial statements. For the three-months ended March 31, 2009, investment interest income does not include $9.1 million of interest earnings on the $726.5 million of currently deferring and defaulted securities. 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.