CHICAGO, March 16 /PRNewswire-FirstCall/ -- Deerfield Capital Corp.
(NYSE Alternext: DFR) today announced the results of operations for
its fourth quarter ended December 31, 2008. FOURTH QUARTER AND
FISCAL YEAR 2008 SUMMARY -- The net loss for the quarter totaled
$142.6 million, or $21.15 per diluted common share. $116.2 million
of this loss represents unrealized losses on loans primarily
resulting from mark-to-market writedowns. -- Core earnings for the
quarter totaled $3.3 million, or $0.49 per diluted common share.
Core earnings is a non-GAAP financial measure which primarily
reflects GAAP earnings excluding certain expenses (see
reconciliation of non-GAAP measures attached). -- The net loss for
the year ended December 31, 2008, was $757.4 million, or $116.28
per diluted common share. -- Core earnings for the year ended
December 31, 2008, were $32.3 million, or $4.96 per diluted common
share. -- Unrestricted cash, cash equivalents, unencumbered
residential mortgage backed securities ("RMBS") and net equity in
financed RMBS totaled approximately $59.0 million at quarter end.
-- Assets under management ("AUM") totaled $10.5 billion at January
1, 2009. Commenting on fourth quarter results, Jonathan Trutter,
Chief Executive Officer, said, "Financial market conditions
remained challenging in the final quarter of 2008. Mark-to-market
charges on loans held for sale together with further deterioration
in market prices of syndicated bank loans represented the majority
of the losses in the quarter. Any recovery in the market prices of
those loans would allow us to recapture certain of our unrealized
book losses." Trutter added, "In 2009, our financial results will
reflect the expected recovery in asset values, the launch of any
new investment products to be managed through our Investment
Management segment and the full benefit of our recent cost savings
initiative. We believe that our core investment management business
is competitively positioned for the future." 4th Quarter Financial
Overview Results for the quarter ended December 31, 2008 reflect
the ongoing impact of severe financial market turmoil and the
continued decline in asset values. The net loss for the quarter
totaled $142.6 million, or $21.15 per diluted common share, an
improvement of $14.3 million, or 9.1%, as compared to the net loss
of $156.9 million, or $22.81 per diluted common share, during the
third quarter of 2008. The net loss was primarily the result of a
decline in the value of our loan portfolio resulting from both
mark-to-market declines and certain impairment charges. In the
fourth quarter, we had positive core earnings of $3.3 million, a
decline of $4.6 million or 58.2%, as compared to the $7.9 million
of core earnings generated during the prior quarter. This decline
was primarily the result of lower net interest income and fees
offset by a partial quarter of lower operating expenses resulting
from our cost savings initiative, which was not fully implemented
until mid-way through the fourth quarter. Net interest income
totaled $5.5 million for the quarter ended December 31, 2008, a
decline of $3.3 million, or 37.5%, as compared to $8.8 million in
the prior quarter. The global recession negatively impacted our
fourth quarter net interest income as we experienced increases in
the number of non-performing loans in our other corporate debt
portfolio. Additionally, we have continued to reduce the size of
our principal investing portfolio as we shift our strategic focus
toward our investment management business. Investment advisory fees
totaled $6.7 million in the quarter, a decline of $2.3 million, or
25.6%, as compared to $9.0 million in the prior quarter. The
decrease in investment advisory fees was primarily the result of
the liquidations of the government arbitrage investment fund and
market value collateralized loan obligations that we managed. The
provision for loan losses was $56.0 million for the quarter,
compared with $15.5 million in the prior quarter. The increased
provision for loan losses was primarily a result of our decision to
opportunistically sell our Principal Investing segment loan
portfolio held outside of Market Square CLO Ltd. and DFR Middle
Market CLO Ltd. As a result of this decision, we were required to
transfer these loans from held for investment to held for sale and
to mark-to-market these loans, resulting in a $45.6 million
provision for loan loss. The remaining $10.4 million represents
specific credit impairments on loans held for investment. Expenses
totaled $18.8 million for the quarter, compared with $122.8 million
from the prior quarter. The decrease in expenses was primarily a
result of the $103.6 million decline in impairment of intangible
assets and goodwill. During the fourth quarter, we recorded $6.7
million of impairment of intangible assets consisting of $4.0
million related to our trade name and $2.7 million related to
declines in investment advisory fee intangible assets. During the
fourth quarter, we implemented a cost savings initiative, which
included reducing headcount by 24 employees, or approximately 26%
of the then current workforce, reducing bonus compensation and
instituting a salary freeze. We also have been reducing other
operating expenses and expect expenses in future periods to reflect
the full impact of these initiatives. We believe these cost savings
initiatives will improve our financial results without adversely
impacting our ability to operate our business in a sound manner.
Other income and gain (loss) was a net loss of $80.0 million in the
quarter, compared with a net loss of $31.8 million in the prior
quarter. The current quarter net loss was primarily a result of
unrealized losses resulting from mark-to-market accounting in the
syndicated bank loan held for sale portfolio, which primarily
consists of the loans held in the non-recourse Market Square CLO
Ltd. and our non-recourse credit facility with Wachovia, and
unrealized losses in both the interest rate swap portfolio and RMBS
portfolio due to wider spreads in the government agency
mortgage-backed security market. Strategy We are focused on growing
the Investment Management segment of our business by launching new
investment products that will diversify our revenue streams and
take advantage of our core competencies of credit analysis and
asset management. We intend to make investments in certain of these
new investment products. We believe that the growth of fee-based
income through the management of alternative investment products
will provide the most attractive risk-adjusted return on capital.
We are focused on managing our Principal Investing segment by
opportunistically selling corporate loans held outside of Market
Square CLO Ltd. and DFR Middle Market CLO Ltd. and redeploying our
capital into other fee-based strategies. We expect to continue to
hold our RMBS portfolio both for the net interest income it
provides and as a source of liquidity for operations and future
growth. Additionally, we continue to explore strategic
opportunities in order to maximize value for our stockholders. AUM
As of January 1, 2009, our AUM totaled approximately $10.5 billion
held in twenty-seven collateralized debt obligations ("CDOs") and
five separately managed accounts. AUM decreased by approximately
$1.4 billion, or 11.8%, from October 1, 2008. The decline was
primarily due to the liquidations of Bryn Mawr CLO II Ltd., Access
Institutional Loan Fund and the government arbitrage investment
fund that we managed. On February 11, 2009, we assumed the
management contract for Mayfair Euro CDO I B.V., a Euro-denominated
CDO collateralized primarily by investment grade and high-yield
corporate bonds. As of February 15, 2009, the aggregate principal
balance of this CDO was approximately $137.0 million (converted
from Euros at the February 15, 2009 exchange rate of 1.2765). This
transaction was in line with our previously announced strategy to
acquire and assume CDO management contracts from other investment
managers. As of March 1, 2009, our AUM was approximately $10.4
billion. Investment Portfolio Total invested assets declined $220.1
million, or 21%, to $828.4 million as of December 31, 2008 compared
to the end of the prior quarter. The decrease was primarily
attributable to declines in values as a result of recognizing
mark-to-market adjustments. Liquidity We believe that our current
cash and cash equivalents, unencumbered liquid assets, net equity
in financed RMBS portfolio along with cash flows from operations
are adequate to meet our anticipated liquidity requirements.
Unencumbered RMBS and unrestricted cash and cash equivalents
aggregated $41.3 million at December 31, 2008. In addition, net
equity in the financed RMBS portfolio (including associated
interest rate swaps), excluding the unencumbered RMBS included
above, totaled $17.7 million at year end. In total, we had
unrestricted cash and cash equivalents, unencumbered RMBS and net
equity in our financed RMBS portfolio of $59.0 million as of
December 31, 2008. As of December 31, 2008, the fair value of our
agency RMBS and non-agency RMBS portfolios were $342.4 million and
$5.4 million, respectively. Conference Call The company will host a
live conference call to discuss its financial results on Tuesday,
March 17, 2009, at 11:00 a.m. Eastern Time. The conference call
will be accessible by telephone and through the Internet.
Interested individuals are invited to access the call by dialing
888-205-6648. To participate on the webcast, log on to the
company's website at http://www.deerfieldcapital.com/ 15 minutes
before the call to download the necessary software. For those
unable to listen to the call live, a replay will be available
beginning one hour following the completion of the call on March
17, 2009 and will continue through March 24, 2009. To access the
rebroadcast, dial 888-203-1112 and request reservation number
9964992. A replay of the call will also be available on the
Internet at http://www.deerfieldcapital.com/ for 30 days. The
company expects to discontinue the practice of having conference
calls following this call. About the Company Deerfield Capital
Corp., through its subsidiary, Deerfield Capital Management LLC,
manages client assets, including bank loans and other corporate
debt, RMBS, government securities and asset-backed securities. In
addition, Deerfield Capital Corp. has a principal investing
portfolio comprised of fixed income investments, including bank
loans and other corporate debt and RMBS. For more information,
please go to the company website, at
http://www.deerfieldcapital.com/. * * Notes and Tables to Follow *
* NOTES TO PRESS RELEASE Certain statements in this press release
are forward-looking as defined by the Private Securities Litigation
Reform Act of 1995. These include statements regarding future
results or expectations. Forward-looking statements can be
identified by forward looking language, including words such as
"believes," "anticipates," "expects," "estimates," "intends,"
"may," "plans," "projects," "will" and similar expressions, or the
negative of these words. Such forward-looking statements are based
on facts and conditions as they exist at the time such statements
are made. Forward-looking statements are also based on predictions
as to future facts and conditions, the accurate prediction of which
may be difficult and involve the assessment of events beyond the
control of Deerfield Capital Corp. and its subsidiaries (DFR).
Forward-looking statements are further based on various operating
assumptions. Caution must be exercised in relying on
forward-looking statements. Due to known and unknown risks, actual
results may differ materially from expectations or projections. DFR
does not undertake any obligation to update any forward-looking
statement, whether written or oral, relating to matters discussed
in this press release, except as may be required by applicable
securities laws. Various factors could cause DFR's actual results
to differ materially from those described in any forward-looking
statements. These factors include, but are not limited to: changes
in economic and market conditions, particularly as they relate to
the market for debt securities, such as mortgage-backed securities,
and collateralized debt obligations; continued availability of
financing; changes in DFR's investment, hedging or credit
strategies or the performance of its investment portfolios; the
effects of defaults or terminations under, and DFR's ability to
enter into replacement transactions with respect to, repurchase
agreements, interest rate swaps and long-term debt obligations;
reductions in DFR's assets under management and related management
and advisory fee revenue; DFR's ability to maintain adequate
liquidity; DFR's ability to make investments in new investment
products and realize growth of fee-based income; changes to DFR's
tax status; DFR's ability to forecast its tax attributes, which are
based upon various facts and assumptions, and its ability to
protect and use its net operating losses to offset taxable income;
DFR's ability to maintain compliance with its existing debt
instruments and other contractual obligations; impact of
restrictions contained in DFR's existing debt instruments; DFR's
ability to maintain its exemption from registration as an
investment company pursuant to the Investment Company Act of 1940;
DFR's ability to comply with the continued listing standards of the
NYSE Alternext US LLC; the cost, uncertainties and effect of any
legal and administrative proceedings, such as the current
Securities and Exchange Commission ("SEC") investigation into
certain mortgage-backed securities trading procedures in connection
with which the SEC has requested certain information from DFR
regarding certain of its mortgage securities trades; DFR's ability
to enter into, and the effects of, any potential strategic
transactions; and changes in, and the ability of DFR to remain in
compliance with, law, regulations or government policies affecting
DFR's business, including investment management regulations and
accounting standards. These and other factors that could cause
DFR's actual results to differ materially from those described in
the forward-looking statements are set forth in DFR's annual report
on Form 10-K, for the year ended December 31, 2008 and DFR's other
public filings with the SEC and public statements. Readers of this
press release are cautioned to consider these risks and
uncertainties and not to place undue reliance on any
forward-looking statements. DEERFIELD CAPITAL CORP. AND ITS
SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December September December 31, 30, 31, 2008 2008 2007 ---- ----
---- (In thousands, except share and per share amounts)
------------------------------- ASSETS Cash and cash equivalents
$32,791 $41,908 $113,733 Due from broker 15,065 12,715 270,630
Restricted cash and cash equivalents 76,892 63,034 47,125
Available-for-sale securities, including zero, zero and $4,884,023
pledged-at fair value 2,338 5,078 4,897,972 Trading securities,
including $340,866, $408,660 and $733,782 pledged-at fair value
347,977 415,462 1,444,505 Other investments 4,764 4,764 5,472
Derivative assets 132 2,004 4,537 Loans held for sale 218,137
267,419 267,335 Loans held for investment 255,351 356,709 466,360
Allowance for loan losses (19,979) (21,596) (5,300) ------- -------
------ Loans, net of allowance for loan losses 235,372 335,113
461,060 Investment advisory fee receivables 4,012 4,077 6,409
Interest receivable 5,843 7,804 39,216 Other receivable 4,249 3,131
22,912 Prepaid and other assets 11,831 12,911 14,721 Fixed assets,
net 9,143 9,470 10,447 Intangible assets, net 28,310 36,364 83,225
Goodwill - - 98,670 - - ------ TOTAL ASSETS $996,856 $1,221,254
$7,787,969 ======== ========== ========== LIABILITIES Repurchase
agreements, including $407, $336 and $20,528 of accrued interest
$326,112 $383,617 $5,303,865 Due to broker 1,514 2,298 879,215
Dividends payable - 7,354 21,944 Derivative liabilities 13,529
7,927 156,813 Interest payable 6,606 4,901 28,683 Accrued and other
liabilities 15,112 15,209 35,652 Short term debt - 172 1,693 Long
term debt 716,417 736,408 775,368 ------- ------- ------- TOTAL
LIABILITIES 1,079,290 1,157,886 7,203,233 --------- ---------
--------- Series A cumulative convertible preferred stock; $0.001
par value, zero, zero and 14,999,992 shares issued and outstanding
(aggregate liquidation value of zero, zero and $150,000) - -
116,162 - - ------- STOCKHOLDERS' EQUITY (DEFICIT) Preferred stock,
par value $0.001: 100,000,000 shares authorized; zero, zero and
14,999,992 shares issued and outstanding as described above - - -
Common stock, par value $0.001: 500,000,000 shares authorized;
6,455,466, 6,676,106 and 5,175,272 shares issued and 6,449,102,
6,669,742 and 5,165,532 shares outstanding 6 7 5 Additional paid-in
capital 865,869 866,330 748,262 Accumulated other comprehensive
loss (4,256) (1,525) (83,783) Accumulated deficit (944,053)
(801,444) (195,910) -------- -------- -------- TOTAL STOCKHOLDERS'
EQUITY (DEFICIT) (82,434) 63,368 468,574 ------- ------ -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $996,856
$1,221,254 $7,787,969 ======== ========== ========== DEERFIELD
CAPITAL CORP. AND ITS SUBSIDIARIES CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED) For the three months ended
-------------- Year ended December September December 31, 30, 31,
2008 2008 2008 ---- ---- ---- (In thousands, except share and per
share amounts) ------------------------------- REVENUES Interest
income $18,661 $20,506 $122,341 Interest expense 13,112 11,671
84,804 ------ ------ ------ Net interest income 5,549 8,835 37,537
Provision for loan losses 56,035 15,459 75,996 ------ ------ ------
Net interest income (expense) after provision for loan losses
(50,486) (6,624) (38,459) Investment advisory fees 6,668 9,015
40,161 ----- ----- ------ Total net revenues (43,818) 2,391 1,702
------- ----- ----- EXPENSES Compensation and benefits 5,197 4,984
26,917 Professional services 1,237 2,211 7,178 Insurance expense
700 740 2,907 Other general and administrative expenses 1,162 1,417
5,859 Depreciation and amortization 1,677 2,498 9,442 Occupancy 643
645 2,518 Cost savings initiatives 1,496 (2) 1,821 Impairment of
intangible assets and goodwill 6,704 110,268 146,006 ----- -------
------- Total expenses 18,816 122,761 202,648 ------ -------
------- OTHER INCOME AND LOSS Net gain (loss) on available-for-sale
securities 18 (856) (4,694) Net loss on trading securities (3,867)
(13,655) (219,988) Net loss on loans held for investment and loans
held for sale (63,643) (14,367) (99,047) Net loss on derivatives
(12,999) (2,239) (232,383) Dividend income and other gain (loss)
483 (678) (1) --- ---- -- Net other income and loss (80,008)
(31,795) (556,113) ------- ------- -------- Loss before income tax
expense (142,642) (152,165) (757,059) Income tax (benefit) expense
(33) 4,718 351 --- ----- --- Net loss (142,609) (156,883) (757,410)
-------- -------- -------- Less: Cumulative convertible preferred
stock dividends and accretion - - 2,393 - - ----- Net loss
attributable to common stockholders $(142,609) $(156,883)
$(759,803) ========= ========= ========= NET LOSS PER SHARE-BASIC
$(21.15) $(22.81) $(116.65) NET LOSS PER SHARE-DILUTED $(21.15)
$(22.81) $(116.65) WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC 6,743,274 6,878,260 6,513,674 WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 6,743,274 6,878,260 6,513,674
DEERFIELD CAPITAL CORP. AND ITS SUBSIDIARIES RECONCILIATION OF
NON-GAAP MEASURES We believe that core earnings, a non-GAAP
financial measure, is a useful metric for evaluating and analyzing
our performance. The calculation of core earnings, which we use to
compare our financial results from period to period, eliminates the
impact of certain non-cash charges and special items and income tax
expense (benefit). Core earnings provided herein may not be
comparable to similar measures presented by other companies as they
are non-GAAP financial measures and may therefore be defined
differently by other companies. Core Earnings The table below
provides reconciliation between net loss and core earnings: For the
three months ended -------------------------- Year ended December
31, December 31, September 30, ------------------- 2008 2008 2008
2007 ---- ---- ---- ---- (In thousands, except share and per share
amounts) -------------------------------------------------- Net
loss $(142,609) $(156,883) $(757,410) $(96,236) Add back: Provision
for loan losses 56,035 15,459 75,996 8,433 Cost saving initiatives
1,496 (2) 1,821 - Depreciation and amortization 1,677 2,498 9,442
297 Impairment of intangible assets and goodwill 6,704 110,268
146,006 - Net other income and loss 80,008 31,795 556,113 163,979
Income tax (benefit) expense (33) 4,718 351 980 --- ----- --- ---
Core earnings $3,278 $7,853 $32,319 $77,453 ====== ====== =======
======= Core earnings per share - diluted $0.49 $1.14 $4.96 $15.01
Weighted- average number of shares outstanding - diluted 6,743,274
6,878,260 6,513,674 5,160,625 DEERFIELD CAPITAL CORP. AND ITS
SUBSIDIARIES AUM The following table summarizes AUM and investment
advisory fees for each product category: January 1, 2009 October 1,
2008 --------------- --------------- AUM (1) AUM (1) Number of
------- Number of ------- Accounts (In thousands) Accounts (In
thousands) -------- -------------- -------- -------------- CDOs (2)
: CLOs (3) 12 $4,286,407 14 $4,738,850 Asset-backed securities 12
5,229,331 12 5,780,808 Corporate bonds 3 775,153 3 797,139 -
------- - ------- Total CDOs 27 10,290,891 29 11,316,797 ----------
---------- Investment funds (4): Fixed income arbitrage 0 - 1
330,959 - ------- Separately managed accounts (5) 5 205,201 6
267,295 ------- ------- Total AUM (6) $10,496,092 $11,915,051
=========== =========== (1) AUM numbers are reported as of January
1, 2009 and October 1, 2009, rather than December 31, 2008 and
September 30, 2008 to be inclusive of contributions, which for the
investment funds were effective on the first of every month. (2)
CDO AUM numbers generally reflect the aggregate principal or
notional balance of the collateral and, in some cases, the cash
balance held by the CDOs and are as of the date of the last trustee
report received for each CDO prior to January 1, 2009 and October
1, 2009, respectively. (3) The AUM for our Euro-denominated CLO has
been converted into U.S. dollars using the spot rate of exchange on
December 31, 2008 and September 30, 2008, respectively. (4) For
October 1, 2008, the number of accounts for the investment funds
does not include feeder funds, which are funds that invest all or
substantially all of their assets into a trading fund which we
managed, although some of our management fees were paid pursuant to
contracts with those feeder funds. The investment funds were
liquidated during 2008. (5) AUM for certain of the separately
managed accounts is a multiple of the capital actually invested in
such account. Management fees for these accounts are paid on this
higher AUM amount. (6) Included in Total AUM are $295.1 million and
$294.1 million related to Market Square CLO Ltd., and $303.1 and
$300.9 million related to DFR Middle Market CLO Ltd. for January 1,
2009 and October 1, 2008, respectively, which amounts are also
included in the total AUM reported for the Principal Investing
portfolio as of December 31, 2008 and September 30, 2008. DCM
manages these CDOs but is not contractually entitled to receive any
management fees so long as 100% of the equity is held by Deerfield
Capital LLC or an affiliate thereof. All other amounts included in
the Principal Investing portfolio are excluded from Total AUM.
DEERFIELD CAPITAL CORP. AND ITS SUBSIDIARIES INVESTMENT PORTFOLIO
The following table summarizes our principal investment portfolio:
December 31, 2008 September 30, 2008 -----------------
------------------ % of % of Carrying Total Carrying Total
Principal Investments Value Investments Value Investments
--------------------- ----- ----------- ----- ----------- (In (In
thousands) thousands) ---------- ---------- RMBS (1) $347,817 42.0%
$414,502 39.5% Corporate leveraged loans: Loans held in DFR MM CLO
(2) 243,103 29.3% 256,818 24.5% Loans held in Wachovia Facility
21,742 2.6% 77,676 7.4% Other corporate leveraged loans (3) 12,394
1.5% 32,259 3.1% Assets held in Market Square CLO (4) 186,305 22.5%
250,082 23.8% Commercial real estate loans and securities 12,282
1.5% 12,371 1.2% Equity securities 4,764 0.6% 4,764 0.5% ----- ---
----- --- Total Investments 828,407 100.0% 1,048,472 100.0% =====
===== Allowance for loan losses (19,979) (21,596) ------- -------
Net Investments $808,428 $1,026,876 ======== ========== (1) RMBS
are either agency RMBS or non-agency RMBS. (2) Assets held in DFR
Middle Market CLO Ltd. are the result of the July 17, 2007
securitization of corporate loans held in the non-recourse credit
facility with Wachovia. We purchased 100% of the equity interests
for $50.0 million and all of the BBB/Baa2 rated notes for $19.0
million. (3) Other corporate leveraged loans exclude credit default
swap transactions and total return swaps. (4) Assets held in Market
Square CLO Ltd. include syndicated bank loans of $184.0 million and
$245.0 million and high yield corporate bonds and ABS of $2.3
million and $5.1 million as of December 31, 2008 and September 30,
2008, respectively. DATASOURCE: Deerfield Capital Corp. CONTACT:
Frank Straub, Chief Financial Officer of Deerfield Capital Corp.,
+1-773-380-6636; or Leslie Loyet, +1-312-640-6672, for Deerfield
Capital Corp. Web Site: http://www.deerfieldcapital.com/
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