Smooth Jazz

Alesco Agony Reaches a Crisis Point

<I guess my point was more to illustrate that the TruPS model they are using is pretty much broken at this point. Unfortunately the stock is getting hit hard today as a result of last night's disclosures. I do like AFN management and I do support the Cohens in general (author is long RAS).>

I hear you. The TruPS model is DEFINITELY broken. In a Seeking Alpha post yesterday, Prudential Speculations described some possible scenarios for them going forward including focusing on the leveraged loan franchise they have built, DeREITing and using the cash to rebuild the platform around something other than bank TruPS. Btw, RAS (common and the PFD B & PFD C) is my largest holding in the REIT space. Your Mortgage REITs journal is a fantastic blog and I check in often. GL to you.

Alesco Agony Reaches a Crisis Point

Good points, but you didn't mention that the failed CDOs only hit 41% of their taxable income, suggesting the last 2 CDOs are much larger contributors that the 2 that are offline. In other words, 59% of their taxable income (approx 50cents per year) are still coming from contributing businesses, a nice chunk of income for a $1 stock with over $100M in cash.

And while you noted that the $86M was a tax loss, you didn't mention the fact that this allows them to save on paying out cash for "Phantom Income". Or that they are no longer subject to counter party risk on that cash. Finally, you failed to note that AFN has over $100M unrestricted cash, $88M of restricted cash available for additional investments, a viable CLO generating approx 24cents in income per year, and no short term recourse debt.

If they had recourse debt and facing imminent firesales into this market, I would agree with you that they faced an imminent crisis. While the TruPS business broken is broken, their huge cash position provides a significant cushion.

Alesco Financial: REIT Selling For Less Than Cash On Hand

<It would appear that those 300 or so banks in AFN's TRUPS may be in danger.>

Thanks for the info Scotty. That would depend on which banks and whether they are in AFN CDOs. Other than IMB, ETFC was the only other large financial company in AFN TruPS at 2.4%. If the deferred/defaulted that would hit AFN. Multiple smaller banks deferring/defaulting would do the trick as well. One or two additional small deferrals would likely not have much impact.

Alesco: IndyMac Failure Priced In

Great article Prudent and thanks for the plug (I'm Brian King). You eloquently laid out some great ideas to grow the business and leverage their core competencies. Hope Mgmt and the "Special Committe" are reading SA and consider some of you excellent advice.

I dont see the stock getting any traction in this market where good financial names are getting 10% - 20% haircuts daily. Hopefully, this "crisis" in the sector will pass and folks will see the value in AFN that you described. Unfortunately, I don't see any let up until we get through C, BAC, MER, etc earnings reports the next few weeks, and the REITs start reporting in early August.

Nice job!

Alesco Financial: REIT Selling For Less Than Cash On Hand

<Forgot to factor in the failure and takeover of IMB. CDOs to cure in 4 to 7 quarters? How about no cure. Look forward to new analysis.>

User,

Read the May 15th press release carefully. AFN said the CDOs would cure in 4 - 7 months even if IMB defaulted and didn't pay another dime. The key is that there are no other or minimal defaults/deferrals in the affected CDOs. AFN Mgmt suspected that IMB would eventually fail and that is why they put that caveat ("even if IMB does not resume making payment") in the press release. The key for AFN therefore are the other 300+ banks in its CDOs.

GL to you.

Alesco Financial: REIT Selling For Less Than Cash On Hand

<Good information, and was curious if the author is a buyer or holder of AFN?>

Hello Franklin,

Yes, I am the author and I own AFN shares. I use a stock screener which filters out high yielding stocks where the yield is way out of whack. Then I do my DD and take my chances from there.

AFN first came on my radar when it dropped in the $2s in Aug 2007 after the AHM meltdown took down the entire sector. Since then I've added in the lows $2s and low $3s and received 4 dividends (including the one today) equal to $1.06. I'm usually a trader who likes to swing trade these companies for profit but chose to hold this one through all the ups & downs.

GL to you.