CHICAGO, May 11 /PRNewswire-FirstCall/ -- Deerfield Capital Corp.
(NYSE AMEX: DFR) ("DFR" or the "company") today announced the
results of operations for its first quarter ended March 31, 2009.
FIRST QUARTER 2009 SUMMARY -- Net income for the quarter totaled
$11.5 million, or $1.72 per diluted common share. -- Core earnings
for the quarter totaled $5.0 million, or $0.75 per diluted common
share. Core earnings is a non-GAAP financial measure which
primarily reflects GAAP earnings excluding certain non-cash and
special charges and income tax (see reconciliation of non-GAAP
measures attached). -- Unrestricted cash, cash equivalents,
unencumbered residential mortgage backed securities ("RMBS") and
net equity in financed RMBS totaled approximately $65.1 million at
quarter end. -- Assets under management ("AUM") totaled $10.3
billion at April 1, 2009. Commenting on first quarter results,
Jonathan Trutter, Chief Executive Officer, said, "We experienced
some recovery in the value of our principal investing portfolio
which, combined with the realization of benefits from our cost
savings initiatives, contributed to positive first quarter
results." Trutter added, "Although the market environment continues
to be challenging, we are excited about the establishment of our
recently announced investment vehicle with Pegasus and expect 2009
to provide additional new business opportunities for growth in our
Investment Management segment." First Quarter Financial Overview
The results for the quarter ended March 31, 2009 reflect positive
net income and core earnings. The realization of lower expenses
resulting from the company's cost savings initiative during the
fourth quarter and an improvement in asset prices, which led to net
gains on investment holdings, were the main drivers in the
company's positive financial results. The net income for the
quarter totaled $11.5 million, or $1.72 per diluted common share,
an improvement of $154.1 million as compared to the net loss of
$142.6 million, or $21.15 per diluted common share, during the
fourth quarter 2008. In the first quarter, the company had positive
core earnings of $5.0 million, or $0.75 per share, an increase of
$1.7 million, or 51.5 percent, as compared to the $3.3 million, or
$0.49 per share, of core earnings generated during the fourth
quarter 2008. This improvement was driven largely by the
implementation of the company's cost savings initiatives. Net
interest income totaled $6.8 million for the quarter ended March
31, 2009, an increase of $1.3 million, or 23.6 percent, as compared
to $5.5 million in the fourth quarter 2008. The overall lower
interest rate environment during the quarter resulted in a $4.9
million and $6.1 million reduction in interest income and interest
expense, respectively, compared to the fourth quarter 2008.
Although the company experienced an increase in non-performing
loans during the quarter and continued to reduce the size of the
company's principal investing portfolio, DFR still experienced an
increase in net interest income for the quarter. This increase was
primarily attributable to the increased net spread on the company's
RMBS portfolio and the $0.9 million decrease in interest expense on
its long-term recourse debt. Investment advisory fees totaled $4.7
million in the quarter, a decline of $2.0 million, or 30.0 percent,
as compared to $6.7 million in the fourth quarter 2008. The
decrease in investment advisory fees was primarily the result of
the breach of certain overcollateralization tests contained in
certain of the collateralized loan obligations ("CLOs") that the
company manages. Pursuant to the terms of the company's CLO
management agreements, all or a portion of the company's
subordinated management fees may be deferred if, among other
things, overcollateralization tests and other structural
protections built into the CLOs are breached and divert cash flows
from the payment of management fees and other expenses to the
prepayment of the debt securities issued by the CLOs. Breaches of
overcollateralization tests may occur if, for example, the issuers
of the collateral underlying the CDOs default on or defer payment
of principal or interest relating to such collateral or the ratings
assigned to such collateral are downgraded below a specified
threshold. Subordinated investment advisory fees declined by $1.3
million during the three months ended March 31, 2009 compared to
the fourth quarter 2008. DFR expects its CLO subordinated
investment advisory fees to further decline and be subject to
deferral in the near term. However, over time and with improved
market conditions, the company expects the CLOs to regain
compliance with the overcollateralization tests and, subject to the
satisfaction of certain other conditions, DFR expects to recoup at
least a portion of the deferred subordinated management fees and to
receive future CLO subordinated management fees on a current basis.
The remaining decline in investment advisory fees primarily related
to the company's fixed income arbitrage investment fund, which was
liquidated during the fourth quarter 2008 and provided $0.6 million
of fees for that period. The provision for loan losses was $2.1
million for the quarter compared with $56.0 million in the fourth
quarter 2008. The first quarter 2009 provision for loan losses
consisted of $1.3 million related to commercial real estate loans
and $0.8 million related to loans held in DFR Middle Market CLO
Ltd. ("DFR MM CLO"). Expenses totaled $8.3 million for the quarter,
a decrease of $10.5 million, or 55.8 percent, compared with $18.8
million in the fourth quarter 2008. Impairment of intangible assets
and severance and other exit costs from the implementation of the
company's cost savings initiatives were $6.7 million and $1.3
million, respectively, of the expense decline from the fourth
quarter 2008. Excluding those special items, the decline in
expenses for the first quarter 2009 compared to the fourth quarter
2008 was $2.5 million, or 23.6 percent. The benefits from the
company's cost savings initiatives largely contributed to the
decline in compensation and benefits, professional services and
other general and administrative expenses of $1.8 million, $0.4
million and $0.2 million, respectively. Other income and gain
(loss) was a net gain of $10.5 million in the quarter compared with
a net loss of $80.0 million in the fourth quarter 2008. The
improvement in the current quarter primarily resulted from net
gains of $5.1 million and $5.8 million related to the company's
RMBS and loan portfolios, respectively. These net gains largely
consisted of unrealized appreciation in these assets. However,
included in those amounts were $6.2 million of realized losses and
$1.1 million of realized gains from sales of loans held in the
company's non-recourse warehouse funding agreement with Wachovia
Capital Markets, LLC (the "Wachovia Facility") and DFR MM CLO,
respectively. These net gains were also partially off set by $0.4
million of net losses from derivatives. AUM As of April 1, 2009,
DFR's AUM totaled approximately $10.3 billion held in twenty-eight
collateralized debt obligations ("CDOs") and six separately managed
accounts. Investment Portfolio Total invested assets increased by
$31.3 million, or 3.9 percent, to $839.7 million as of March 31,
2009 compared to the end of the fourth quarter 2008. The increase
was primarily attributable to purchases of securities in DFR MM CLO
and increases in the market value of the company's investments.
Liquidity Unencumbered RMBS and unrestricted cash and cash
equivalents aggregated $47.3 million at March 31, 2009. In
addition, net equity in the financed RMBS portfolio (including
associated interest rate swaps), excluding the unencumbered RMBS
included above, totaled $17.8 million at quarter end. In total, DFR
had unrestricted cash and cash equivalents, unencumbered RMBS and
net equity in its financed RMBS portfolio of $65.1 million as of
March 31, 2009. As of March 31, 2009, the fair value of its agency
RMBS and non-agency RMBS portfolios were $333.9 million and $4.8
million, respectively. As of May 8, 2009, the company entered into
a second amended and restated forbearance agreement related to the
Wachovia Facility extending the period through which no action will
be taken in respect of any prior noncompliance with the covenant
requiring the company to maintain stockholders' equity of at least
$240.0 million as well as certain other covenants under the
Wachovia Facility through the earlier of July 7, 2009 and the date
of any breach of the forbearance agreement by the company. The
outstanding balance on the Wachovia Facility has been reduced from
$12.0 million as of March 31, 2009 to $0.9 million as of May 8,
2009 as a result of the sales of assets in the Wachovia Facility.
New Investment Venture On April 14, 2009, the company announced the
establishment of Deerfield Pegasus Loan Capital LP ("DPLC"), its
new investment venture with Pegasus Capital Advisors L.P.
("Pegasus"). Pegasus is a U.S. based private equity firm. Pegasus
and the company have committed to invest $75.0 million and $15.0
million, respectively, in DPLC with such amounts to be invested
primarily in corporate bank loans and other senior secured
corporate loans. The commitments of each of Pegasus and DFR are
subject to numerous conditions, any or all of which may not be
satisfied. DPLC will be managed by Deerfield Capital Management
LLC. 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; DFR's ability to maintain
adequate liquidity, including DFR's ability to negotiate a longer
term solution with the holders of its trust preferred securities
with respect to their current waiver of DFR's net worth covenant,
which will expire on April 1, 2010; changes in DFR's investment,
hedging or credit strategies or the performance and values of its
investment portfolios; whether the conditions to Pegasus Capital
Advisors L.P.'s investment commitments are satisfied; DFR's ability
to develop and submit an acceptable plan to the NYSE Amex LLC (the
"NYSE Amex") that adequately addresses how DFR intends to regain
compliance with NYSE Amex continued listing requirements; DFR's
ability to comply generally with the continued listing standards of
the NYSE Amex; DFR's ability to maintain a $15,000,000 market value
of publicly held shares; DFR's ability to generate earnings or
raise capital to achieve positive stockholders' equity; internal
policy decisions at the NYSE Amex; 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 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; 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, DFR's quarterly
reports on Form 10-Q 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) March 31, December 31, 2009 2008 ---- ---- (In
thousands, except share and per share amounts)
--------------------------- ASSETS Cash and cash equivalents
$42,354 $32,791 Due from broker 23,939 15,065 Restricted cash and
cash equivalents 23,905 76,892 Available-for-sale securities-at
fair value 2,619 2,338 Trading securities, including $335,252 and
$340,866 pledged-at fair value 339,436 347,977 Other investments
4,764 4,764 Derivative assets 21 132 Loans held for sale 210,616
218,137 Loans held for investment 304,438 255,351 Allowance for
loan losses (22,171) (19,979) ------- ------- Loans held for
investment, net of allowance for loan losses 282,267 235,372
Investment advisory fee receivables 2,030 4,012 Interest receivable
4,360 5,843 Other receivable 2,513 4,249 Prepaid and other assets
11,678 11,831 Fixed assets, net 8,820 9,143 Intangible assets, net
26,997 28,310 ------ ------ TOTAL ASSETS $986,319 $996,856 ========
======== LIABILITIES Repurchase agreements, including $53 and $407
of accrued interest $318,641 $326,112 Due to broker - 1,514
Derivative liabilities 13,817 13,529 Interest payable 2,575 6,606
Accrued and other liabilities 7,190 15,112 Long term debt 714,622
716,417 ------- ------- TOTAL LIABILITIES 1,056,845 1,079,290
--------- --------- STOCKHOLDERS' DEFICIT Preferred stock, par
value $0.001: 100,000,000 shares authorized; 14,999,992 and zero
shares issued and zero outstanding - - Common stock, par value
$0.001: 500,000,000 shares authorized; 6,455,466 and 6,455,466
shares issued and 6,454,383 and 6,449,102 shares outstanding 6 6
Additional paid-in capital 865,910 865,869 Accumulated other
comprehensive loss (3,928) (4,256) Accumulated deficit (932,514)
(944,053) -------- -------- TOTAL STOCKHOLDERS' DEFICIT (70,526)
(82,434) ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS'
DEFICIT $986,319 $996,856 ======== ======== DEERFIELD CAPITAL CORP.
AND ITS SUBSIDIARIES CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended -------------------------- March 31,
December 31, March 31, 2009 2008 2008 ---- ---- ---- (In thousands,
except share and per share amounts) -------------------------------
REVENUES Interest income $13,782 $18,661 $61,350 Interest expense
6,999 13,112 47,600 ----- ------ ------ Net interest income 6,783
5,549 13,750 Provision for loan losses 2,107 56,035 2,200 -----
------ ----- Net interest income (expense) after provision for loan
losses 4,676 (50,486) 11,550 Investment advisory fees 4,737 6,668
12,119 ----- ----- ------ Total net revenues 9,413 (43,818) 23,669
----- ------- ------ EXPENSES Compensation and benefits 3,354 5,197
9,101 Professional services 790 1,237 1,387 Insurance expense 764
700 734 Other general and administrative expenses 946 1,162 1,430
Depreciation and amortization 1,635 1,677 2,687 Occupancy 639 643
621 Cost savings initiatives 197 1,496 257 Impairment of intangible
assets and goodwill - 6,704 27,906 --- ----- ------ Total expenses
8,325 18,816 44,123 ----- ------ ------ OTHER INCOME AND LOSS Net
(loss) gain on available-for- sale securities (31) 18 - Net gain
(loss) on trading securities 5,138 (3,867) (200,719) Net gain
(loss) on loans 5,815 (63,643) (26,542) Net loss on derivatives
(404) (12,999) (223,215) Dividend income and other (loss) gain (49)
483 118 --- --- --- Net other income and gain (loss) 10,469
(80,008) (450,358) ------ ------- -------- Income (loss) before
income tax expense 11,557 (142,642) (470,812) Income tax expense
(benefit) 18 (33) (7,202) --- --- ------ Net income (loss) 11,539
(142,609) (463,610) ------ -------- -------- Less: Cumulative
convertible preferred stock dividends and accretion - - 2,393 ---
--- ----- Net income (loss) attributable to common stockholders
$11,539 $(142,609) $(466,003) ======= ========= ========= NET
INCOME (LOSS) PER SHARE-BASIC $1.72 $(21.15) $(84.78) NET INCOME
(LOSS) PER SHARE-DILUTED $1.72 $(21.15) $(84.78) WEIGHTED-AVERAGE
NUMBER OF SHARES OUTSTANDING - BASIC 6,702,329 6,743,274 5,496,522
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 6,702,329
6,743,274 5,496,522 DEERFIELD CAPITAL CORP. AND ITS SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES The company believes that core
earnings, a non-GAAP financial measure, is a useful metric for
evaluating and analyzing performance. The calculation of core
earnings, which the company uses to compare financial results from
period to period, eliminates the impact of certain non-cash and
special charges and income tax. Core earnings provided herein may
not be comparable to similar measures presented by other companies
as it is a non-GAAP financial measure and may therefore be defined
differently by other companies. Core earnings includes the earnings
from the company's consolidated variable interest entities
("VIEs"), Market Square CLO Ltd. ("Market Square CLO") and DFR MM
CLO, which is not indicative of cash flows received from these
VIEs. Core Earnings The table below provides reconciliation between
net income (loss) and core earnings: For the three months ended
-------------------------- March 31, December 31, March 31, 2009
2008 2008 ---- ---- ---- (In thousands, except share and per share
amounts) ------------------------------- Net income (loss) $11,539
$(142,609) $(463,610) Add back: Provision for loan losses 2,107
56,035 2,200 Cost saving initiatives 197 1,496 257 Depreciation and
amortization 1,635 1,677 2,687 Impairment of intangible assets and
goodwill - 6,704 27,906 Net other income and (gain) loss (10,469)
80,008 450,358 Income tax expense (benefit) 18 (33) (7,202) --- ---
------ Core earnings $5,027 $3,278 $12,596 ====== ====== =======
Core earnings per share - diluted $0.75 $0.49 $2.29
Weighted-average number of shares outstanding - diluted 6,702,329
6,743,274 5,496,522 DEERFIELD CAPITAL CORP. AND ITS SUBSIDIARIES
INVESTMENT ADVISORY FEES AND INTEREST INCOME AND EXPENSE The
following table summarizes the company's investment advisory fees
and interest income and expense: For the three months ended
-------------------------- March 31, December 31, March 31, 2009
2008 2008 ---- ---- ---- (In thousands) -------------- CDO
management fees: Senior fees $2,938 $3,241 $4,317 Subordinated fees
1,403 2,688 3,542 Performance fees 152 - 72 --- --- --- Total CDO
management fees 4,493 5,929 7,931 Separately managed accounts and
other 244 125 246 Fixed income arbitrage investment funds - 614
3,942 --- --- ----- Total investment advisory fees $4,737 $6,668
$12,119 ====== ====== ======= Interest Income: RMBS, U.S. Treasury
bills and other securities $4,565 $5,300 $43,037 Assets held in
Market Square CLO 3,062 4,393 5,227 Assets held in DFR MM CLO 5,820
6,713 8,241 Other corporate debt 335 2,255 4,845 --- ----- -----
Total interest income 13,782 18,661 61,350 ====== ====== ======
Interest Expense: Recourse: Repurchase agreements and other
short-term debt $687 $2,430 $36,585 Series A and Series B notes
1,344 1,829 1,942 Trust preferred securities 1,623 2,084 2,260
----- ----- ----- Total recourse interest expense 3,655 6,343
40,787 ----- ----- ------ Non-Recourse Market Square CLO 1,705
3,363 3,356 DFR MM CLO 1,545 2,935 2,956 Wachovia Facility 94 471
501 --- --- --- Total non-recourse interest expense 3,344 6,769
6,813 ----- ----- ----- Total interest expense $6,999 $13,112
$47,600 ====== ======= ======= DEERFIELD CAPITAL CORP. AND ITS
SUBSIDIARIES AUM AND INVESTMENT PORTFOLIO The following table
summarizes AUM for each product category: April 1, 2009 January 1,
2009 ------------- --------------- Number of Number of Accounts AUM
Accounts AUM -------- --- -------- --- (In thousands) (In
thousands) -------------- -------------- CDOs (1) : CLOs 12
$4,184,002 12 $4,286,407 Asset-backed securities 12 4,906,125 12
5,229,331 Corporate bonds 4 910,924 3 775,153 --- ------- ---
------- Total CDOs 28 10,001,051 27 10,290,891 Separately managed
accounts (2) 6 320,488 5 205,201 ------- ------- Total AUM (3)
$10,321,539 $10,496,092 =========== =========== (1) 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 April 1, 2009 and January 1, 2009, respectively.
The AUM for the Euro-denominated CDOs has been converted into U.S.
dollars using the spot rate of exchange on March 31, 2009 and
December 31, 2008, respectively. (2) 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. (3) Included in Total AUM are
$296.5 million and $295.1 million related to Market Square CLO, and
$293.8 and $303.1 million related to DFR MM CLO for April 1, 2009
and January 1, 2008, respectively, which amounts are also included
in the total AUM reported for the Principal Investing portfolio as
of March 31, 2009 and December 31, 2008. DCM manages these CDOs but
is not contractually entitled to receive any management fees so
long as 100 percent 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. The
following table summarizes the principal investing portfolio: March
31, 2009 December 31, 2008 -------------- -----------------
Carrying % of Total Carrying % of Total Principal Investments Value
Investments Value Investments --------------------- -----
----------- ----- ----------- (In thousands) (In thousands)
------------ ------------ RMBS (1) $338,729 39.3% $347,817 42.0%
Corporate leveraged loans: Loans held in DFR MM CLO (2) 292,108
33.9% 243,103 29.3% Loans held in Wachovia Facility 4,831 0.6%
21,742 2.6% Other corporate leveraged loans 8,270 1.0% 12,394 1.5%
Assets held in Market Square CLO (3) 200,841 23.3% 186,305 22.5%
Commercial real estate loans and securities 12,330 1.4% 12,282 1.5%
Equity securities 4,764 0.5% 4,764 0.6% ----- --- ----- --- Total
Investments 861,873 100.0% 828,407 100.0% ===== ===== Allowance for
loan losses (22,171) (19,979) ------- ------- Net Investments
$839,702 $808,428 ======== ======== (1) RMBS consist of agency RMBS
with estimated fair values of $333.9 million and $342.4 million as
of March 31, 2009 and December 31, 2008, respectively, and
non-agency RMBS with estimated fair values of $4.8 million and $5.4
million as of March 31, 2009 and December 31, 2008. (2) Assets held
in DFR MM CLO are the result of the July 17, 2007 securitization of
corporate loans held in the non-recourse credit facility with
Wachovia. The company purchased 100 percent of the equity interests
for $50.0 million and all of the BBB/Baa2 rated notes for $19.0
million. (3) Assets held in Market Square CLO include syndicated
bank loans of $197.5 million and $184.0 million, high yield
corporate bonds and ABS of $2.6 million and $2.3 million and other
investments of $0.7 million and zero as of March 31, 2009 and
December 31, 2008, respectively. DATASOURCE: Deerfield Capital
Corp. CONTACT: Frank Straub, Chief Financial Officer of Deerfield
Capital Corp., +1-773-380-6636; or Leslie Loyet of Financial
Relations Board, +1-312-640-6672, for Deerfield Capital Corp. Web
Site: http://www.deerfieldcapital.com/
Copyright