Update: IndyMac Bancorp (IMB) Deferral Impact on Alesco Financial Inc.
16 May 2008 - 12:45AM
PR Newswire (US)
PHILADELPHIA, May 15 /PRNewswire-FirstCall/ -- Alesco Financial
Inc. (NYSE:AFN), a specialty finance real estate investment trust,
updates its previous announcement concerning the expected impact to
AFN of the deferral by IndyMac Bancorp (NYSE:IMB) of the interest
payments due on IMB's trust preferred securities held in AFN's
portfolio. AFN has completed a review of its eight collateralized
debt obligation, or "CDO," transactions that include trust
preferred securities issued by IMB. AFN holds a portion of the
equity interests in these eight CDOs. IMB's securities represent an
aggregate of 2.43% of the total pool of collateral in those eight
CDOs and approximately $2.1 million in aggregate interest payments
per quarter to the eight CDOs, of which AFN's proportionate share
is approximately $1.5 million, or about $0.02 per diluted AFN
common share per quarter. IMB's deferral will trigger the failure
of over-collateralization tests in five of the eight CDOs for a
period of time, of which one is expected to be a partial failure
that should cure in the current period. Once the failure of an
over-collateralization test is triggered in a CDO, AFN will no
longer receive current distributions of cash with respect to its
equity interests in the CDO until sufficient cash flow is paid to
senior debt holders in the CDOs to cure the over-collateralization
tests. IMB did not disclose how long it expects to defer its
payments. AFN currently expects that, even if IMB does not resume
making payment, and assuming no additional deferrals, the four
affected CDOs that are not expected to cure in the current period
will recommence making equity distributions within four to seven
quarters. For the year ended December 31, 2007, and the quarter
ended March 31, 2008, the five CDOs that AFN expects will fail
over-collateralization tests contributed $32.3 million, or 38%, and
$8.8 million, or 44%, respectively, of AFN's adjusted earnings for
such periods. AFN's adjusted earnings will continue to include this
income even though AFN will not receive corresponding cash
distributions until the over-collateralization tests have been
cured. Currently, AFN has available unrestricted cash of
approximately $125 million, including cash generated by
previously-disclosed gains on credit default swaps. James McEntee,
President and CEO of AFN, said, "The ultimate impact of IMB's
actions on AFN will be determined over time, based upon whether,
and when, IMB commences payment on its obligations. The actions by
IMB are indicative of the stress that the banking sector is under
at the current time. As I have stated on recent investor calls, the
stress in this sector is likely to continue to evidence itself in
our portfolio for the foreseeable future. IMB's announcement is a
negative development; however, we continue to believe in the health
of this sector over the mid- and long term, and we expect this
portfolio to perform reasonably well. The key to AFN participating
in any turnaround in the banking sector is patience. We have worked
diligently over the past nine months to position AFN's balance
sheet in such a way as to avoid having to take precipitous action;
our current liquidity is critical to being able to weather this
storm. This will, however, take some time. We have the liquidity to
be patient, and we have a management team focused on taking
advantage of opportunities as they arise, as is evidenced most
recently by the benefits garnered from the credit default swaps AFN
put in place." AFN's available unrestricted cash should be
sufficient to allow AFN to maintain its first quarter 2008 dividend
rate for the remainder of 2008, even after giving effect to the
failure of the over-collateralization tests described above. The
payment of future dividends is, however, subject to the review and
approval of AFN's board of directors, and there can be no assurance
that AFN's board will determine to maintain the first quarter
dividend rate. As discussed on AFN's earnings call last week, AFN
is reviewing a number of strategies for the company, including
whether to continue to maintain its REIT qualification. Any change
in strategy could impact the level of future dividend payments. A
special committee of AFN's independent directors has been formed
and has hired advisors to consider these alternatives. Management
and the Board are fully committed to maximizing the realization of
value for shareholders, and are actively engaged in the process of
seeking to do so. About Alesco Financial Inc. Alesco Financial Inc.
is a specialty finance REIT headquartered in Philadelphia,
Pennsylvania and trades on the New York Stock Exchange under the
symbol "AFN". Alesco is externally managed by Cohen & Company
Management, LLC, a subsidiary of Cohen and Company, a global
alternative fixed-income asset manager. For more information,
please visit http://www.alescofinancial.com/. Investors: Media:
John Longino Joseph Kuo Chief Financial Officer Kekst and Company
215-701-8952 212-521-4863 DATASOURCE: Alesco Financial Inc.
CONTACT: Investors, John Longino, Chief Financial Officer of Alesco
Financial Inc., +1-215-701-8952, ; or Media, Joseph Kuo of Kekst
and Company, +1-212-521-4863, for Alesco Financial Inc. Web site:
http://www.alescofinancial.com/
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