Operating Earnings (defined below) for the first quarters of 2009 and 2008 were $0.07 and $0.37 per share, respectively. Table 1, provided below, reconciles Operating Earnings per share to diluted net income per share available to common stockholders.

Effect of Market Conditions on the Company's Business & Recent Developments

During the first quarter of 2009, global economic conditions deteriorated further and ongoing disruptions in the capital markets continued to affect credit performance in the commercial real estate sector. Liquidity in the high yield commercial real estate debt sector remains very low and defaults continue to rise. All these factors continue to put significant pressure on the value of the Company's assets in both its U.S. and non-U.S. portfolios. Under normal market conditions, the Company relies on the credit and equity markets for new capital to finance its investments and grow its business. However, in the current environment, the Company is focused principally on paying down its unsecured debt and managing the credit of its existing portfolio.

The recessionary economic conditions and ongoing market disruptions have had, and the Company expects will continue to have, an adverse effect on the Company's assets. These effects include:

Adverse impact on liquidity and access to capital. The Company's unrestricted cash and cash equivalents decreased from $9,686 at December 31, 2008 to $3,872 at March 31, 2009. In order to secure the amendment and extension of its secured credit facilities (including repurchase agreements) in 2008 with Bank of America, Deutsche Bank and Morgan Stanley, the Company agreed not to request new borrowings under these facilities. Financings through collateralized debt obligations ("CDOs"), which the Company historically utilized, are no longer available, and the Company does not expect to be able to finance investments through CDOs for the foreseeable future.

Breach of covenants. Financial covenants in certain of the Company's secured credit facilities include, without limitation, a covenant that the Company's net income (as defined in the applicable credit facility) will not be less than $1.00 for any period of two consecutive quarters and a covenant that on any date the Company's tangible net worth (as defined in the applicable credit facility) will not have decreased by twenty percent or more from the Company's tangible net worth as of the last business day in the third month preceding such date. The Company's significant net loss for the year ended December 31, 2008 resulted in the Company not being in compliance with these covenants. On March 17, 2009, the secured lenders waived these covenant breaches until April 1, 2009, and subsequently until May 15, 2009. In addition, the Company's secured credit facility with BlackRock Holdco 2, Inc. ("Holdco 2"), an affiliate of the manager of the Company, requires the Company to immediately repay outstanding borrowings under the facility to the extent outstanding borrowings exceed 60% of the fair market value (as determined by the Company's manager) of the shares of common stock of Carbon Capital II, Inc. ("Carbon II") securing such facility. As of February 28, 2009, 60% of the fair market value of such shares declined to approximately $24,840 and outstanding borrowings under the facility were $33,450. On March 17, 2009, Holdco 2 waived this covenant breach until April 1, 2009 and subsequently waived this covenant breach until May 15, 2009.

Failure to meet Euro CDO tests. In the first quarter of 2009, one of the credit rating agencies downgraded several of the subordinate loan positions held by Anthracite Euro CRE CDO 2006-1 plc ("Euro CDO"). As a result, the Euro CDO failed to satisfy its overcollateralization and interest coverage tests. The failure to satisfy these tests causes the interest payments due from the Euro CDO to the Company, as the preferred shareholder of the Euro CDO, to be paid to the senior bondholders for as long as the tests are not satisfied. However, since the Euro CDO's preferred shares were pledged to one of the Company's secured lenders in December 2008, the cash flow was already being diverted to pay down that lender's outstanding balance.

The Company is currently in negotiations with its secured lenders (Bank of America, Deutsche Bank and Morgan Stanley) to restructure its secured credit facilities. If the Company were unable to satisfactorily restructure these secured credit facilities or obtain extensions of the waivers from its secured lenders on or before May 15, 2009, an event of default would immediately occur under the applicable respective facility. An event of default under any of the Company's secured facilities, absent a waiver, would trigger cross-default and cross-acceleration provisions in all of the Company's other secured facilities and, if such debt were accelerated, would trigger a cross-acceleration provision in one of the Company's unsecured debt indentures. In such an event, the Company would be required to repay all outstanding indebtedness under its secured credit facilities and the one indenture immediately. The Company would not have sufficient liquid assets available to repay such indebtedness and the secured lenders would be entitled to seize their collateral under their respective security agreements. In that event, unless the Company was able to obtain additional capital resources or waivers, the Company would be unable to continue its business.

At March 31, 2009, the total amount of debt owed to the Bank of America, Deutsche Bank and Morgan Stanley was $395,932, and $33,450 was owed to Holdco 2, Inc. As of May 11, 2009 the amounts owed are $375,106 and $33,450, respectively. At March 31, 2009, the total amount owed to the Company's secured lenders was $429,382 versus $480,332 at December 31, 2008, resulting in net reduction of $50,950. These paydowns were funded by cash from operating activities of $46,637 for the three months ended March 31, 2009 and cash on hand at December 31, 2008 of $9,686.

Dividend Policy

Due to current market conditions and the Company's current liquidity position, the Company's Board of Directors anticipates that the Company will pay cash dividends on its common and preferred stock only to the extent necessary to maintain its REIT status until the Company's liquidity position has improved and market values of commercial real estate debt show signs of stability. The Board of Directors has not declared a dividend on the Company's Common Stock since the third quarter of 2008 and did not declare a dividend on the Company's preferred stock for the first quarter of 2009. To the extent the Company is required to make distributions to maintain its qualification as a REIT in 2009, the Company may rely upon temporary guidance that was recently issued by the Internal Revenue Service, which allows certain publicly traded REITs to satisfy their net taxable income distribution requirements during 2009 by distributing up to 90% in stock, with the remainder distributed in cash. However, the terms of the Company's preferred stock prohibit the Company from declaring or paying cash dividends on its common stock unless full cumulative dividends have been declared and paid on the preferred stock.

Short-form registration statement

The Company is currently ineligible to use a Registration Statement on Form S-3. While it is ineligible, the Company may use a Registration Statement on Form S-1, but may find raising capital to be more expensive and, if the SEC reviews anyRegistrationStatementon Form S-1 of the Company, subject to delay.

CDO tests

In addition to the covenants under the Company's secured credit facilities, four of the seven CDOs issued by the Company contain compliance tests which, if violated, could trigger a diversion of cash flows from the Company to bondholders of the CDOs. The Company's three CDOs designated as its "HY" series do not have any compliance tests.

Interest Coverage and Overcollateralization Tests ("Cash Flow Triggers")

Four of the seven CDOs issued by the Company contain tests that measure the amount of overcollateralization and excess interest in the transaction. Failure to satisfy these tests would cause the principal and/or interest cash flow that would otherwise be distributed to more junior classes of securities (including those held by the Company) to be redirected to pay down the most senior class of securities outstanding until the tests are satisfied. Therefore, failure to satisfy the coverage tests could adversely affect cash flows received by the Company from the CDOs and thereby the Company's liquidity and operating results. The trigger percentages in the chart below represent the first threshold at which cash flows would be redirected.

Generally, the overcollateralization test measures the principal balance of the specified pool of assets in a CDO against the corresponding liabilities issued by the CDO. However, based on ratings downgrades, the principal balance of an asset or of a specified percentage of assets in a CDO may be deemed reduced below their current balance to levels set forth in the related CDO documents for purposes of calculating the overcollateralization test. As a result, ratings downgrades can reduce the principal balance of the assets used in the overcollateralization test relative to the corresponding liabilities in the test, thereby reducing the overcollateralization percentage. In addition, actual defaults of an asset would also negatively impact compliance with the overcollateralization tests. A failure to satisfy an overcollateralization test on a payment date could result in the redirection of cash flows.

Weighted Average Life, Minimum Weighted Average Recovery Rate, the Moody's Weighted Average Rating Factor, and Fitch Vector Model Test ("Collateral Quality Tests")

Collateral quality tests limit the ability of the Company's CDOs to trade securities within its portfolio. These tests apply to the Euro CDO, which is actively managed. If one of these tests fails, then any subsequent trade will have to either maintain or improve the result of the test or the trade cannot be executed.

Of the above mentioned collateral quality tests, the weighted average rating test and the vector model test have several implications to the CDO. These tests are primarily impacted when credit rating agencies downgrade the underlying CDO collateral. In addition to the Company's manager's ability to trade securities in the portfolio, ratings downgrades by either Moody's or Fitch of assets in the Company's CDOs can negatively affect compliance with the overcollateralization tests when enough assets are downgraded to Caa3 or below. The Company is permitted to actively manage the Euro CDO collateral pool to facilitate compliance with this test through the end of February 2012, the reinvestment period. After the reinvestment period, trades can be executed only under limited circumstances. However, the Company's ability to remain in compliance is limited by the type of securities it holds outside of the Euro CDO and also by the Company's inability to purchase new assets given its liquidity position.

The chart below is a summary of the Company's CDO compliance tests as of March 31, 2009. During the first quarter of 2009, Fitch downgraded a significant number of the assets held in the Euro CDO portfolio. As a result, there were more assets rated CCC or lower, which caused a violation of the over-collateralization tests. In addition, several assets were downgraded to CC or lower. The CDO documents require the CC rated assets to be treated as defaulted assets for purposes of the various compliance tests. The combination of these factors is causing the Euro CDO to fail the overcollateralization tests for all of its classes. Despite several assets being considered in default according to the Euro CDO's transaction documents, all of the assets, with the exception of one, have made their April coupon payments in full.

If the Euro CDO does not resolve the failures of the overcollateralization tests by May 15, 2009, the next coupon date, then the cash flows that remain after the payment of interest to the Class A and Class B senior notes must be utilized to pay down the principal of the Class A notes. This redirection of cash flows will continue until the failures of the Class A through Class D overcollateralization tests are cured.

Additionally, Euro CDO failed its interest coverage test for its preferred shares, which are held by the Company. The Euro CDO's interest coverage test is calculated in the same manner as the Class E overcollateralization test. However, since the Euro CDO's preferred shares were pledged to one of the Company's secured lenders in December 2008, the cash flow was already being diverted to pay down that lender's outstanding balance. As of March 31, 2009, the Company's other applicable CDOs met all coverage tests as shown below.

  Cash Flow Tests                               CDO I    CDO II   CDO III   Euro CDO   Overcollateralization                                                                Current                                       125.9%   124.1%   116.8%    92.9%      Trigger                                       115.6%   113.2%   108.9%    116.4%     Pass/Fail                                     Pass     Pass     Pass      Fail       Interest Coverage                                                                    Current                                       203.0%   169.9%   243.7%    92.9%      Trigger                                       108.0%   117.0%   111.0%    116.4%     Pass/Fail                                     Pass     Pass     Pass      Fail                                                                                            Collateral Quality Tests                      CDO I    CDO II   CDO III   Euro CDO   Weighted Average Life Test                                                           Current                                       N/A      N/A      N/A       3.76       Trigger                                       N/A      N/A      N/A       7.75       Pass/Fail                                     N/A      N/A      N/A       Pass       Minimum Weighted Average Recovery Rate Test                               Moody's    Current                                       N/A      N/A      N/A       22.8%      Trigger                                       N/A      N/A      N/A       18.0%      Pass/Fail                                     N/A      N/A      N/A       Pass       Vector Model Test                                                         Fitch      Pass/Fail                                     N/A      N/A      N/A       Fail       Weighted Average Rating Factor Test                                       Moody's    Current                                       N/A      N/A      N/A       2621       Trigger                                       N/A      N/A      N/A       2740       Pass/Fail                                     N/A      N/A      N/A       Pass        -------------------------------------------------------------------------------  

The chart below is a summary of the estimated fair value of the Company's CDO assets and liabilities as of March 31, 2009.

            Estimated Fair Value                 Assets       Liabilities   CDO I     $313,675     $(172,111)    CDO II    190,974      (121,018)     CDO III   177,680      (68,458)      HY3       165,668      (9,429)       EURO      301,924      (54,100)      Total     $1,149,921   $(425,116)     -------------------------------------------------------------------------------  

Net realized and unrealized gain (loss)

Upon the adoption of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("FAS 159") on January 1, 2008, the Company elected to have the changes in the estimated fair value of its trading securities (formerly classified as available-for-sale) and long-term liabilities recorded in earnings. The gain of $60,419 for the three months ended March 31, 2009 was comprised of realized gains of $1,259, unrealized losses on securities held-for-trading of $(71,836) offset by unrealized gains on liabilities of $127,695 and an unrealized gain on swaps classified as held-for-trading of $5,819.