Cohen & Company Inc. · AMEX:COHN
Cohen & — Alesco Financial Trust — Merger or Acquisition (May 2006)
42 slides from Cohen &'s merger presentation, May 17, 2006
Slide 1: Rule 425 filing legend
Filed by Sunset Financial Resources, Inc. pursuant to Rule 425 under the Securities Act of 1933 and deemed filed pursuant to Rule 14a-12 Under the Securities Exchange Act of 1934 Subject Company: Alesco Financial Trust This filing relates to a proposed merger (the ”Merger”) of Alesco Financial Trust
Slide 2: Investor Presentation
Investor Presentation A ALESCO FINANCIAL TRUST
Slide 3: Forward-Looking Statements
Forward-Looking Statements Information set forth in this release contains forward-looking statements, which involve a number of risks and uncertainties. Sunset and Alesco caution readers that any forward-looking information is not a guarantee of future performance and that actual results could diffe
Slide 4: Table of Contents
Table of Contents I. Transaction Overview II. Sunset Financial Resources III. Alesco Financial Trust IV. Financial Overview V. Summary VI. Appendix Page 3
Slide 5: Transaction Overview
A ALESCO FINANCIAL TRUST Transaction Overview
Slide 6: Transaction Overview
Transaction Overview Sunset will issue 1.26 shares for each Alesco share Sunset externally managed by Cohen Brothers Management under theInterim Management Agreement, effective April 27, 2006 Combined company to pursue Alesco’s strategy of investing in Bank and Insurance Trust Preferred stock, Middl
Slide 7: Why Sunset and Alesco?
Why Sunset and Alesco? Sunset’s Rationale Alesco’s Rationale Expected to be accretive to Provides public stock market earnings within the first year of liquidity to Alesco shareholders operations Effectively doubles Alesco’s capital Sunset shareholders benefit from base in a cost effective manner ne
Slide 8: Redeployment of Assets
Redeployment of Assets Allows Sunset to reinvest its capital into attractive targeted asset classes Low historical default rates, low volatility assets Alesco management team has assets under management of approximately $17 billion Alesco seeks to obtain long-term match-funding through the CDO marke
Slide 9: Access to Cohen Brothers
Access to Cohen Brothers Credit Asset Company Capital Markets Research Sales & Trading Management Management Bank Trust Insurance Trust Middle Market External REIT ABS and MBS Preferred Preferred Loans Manager Cohen Bros. Dekania Emporia Strategos Cohen Brothers Financial Management Capital Manageme
Slide 10: Structured Finance Expertise
Structured Finance Expertise Alesco CDO X Kleros CDO II Taberna IV Alesco CDO IX Emporia CDO I Taberna III $971 MM $1,001 MM $673 MM $683 MM $425MM $780 MM Trust Preferred Securities High Grade ABS Trust Preferred Securities Trust Preferred Securities Leveraged Loan Trust Preferred Securities March
Slide 11: Interim Management Agreement
Interim Management Agreement Cohen Brothers is the external In order to manager during the interim period redeploy Sunset pays Cohen Brothers a monthly management fee equal to Sunset’s assets 1/12 of Sunset’s equity multiplied most efficiently, by 1.5% both During the interim management management p
Slide 12: Post Merger Management and Board of Directors
Post Merger Management and Board of Directors Executive Board of Directors Management Team Daniel G. Cohen Daniel G. Cohen Chairman (Alesco’s Chairman) (17 Years of experience) James J. McEntee, III, James J. McEntee, III (Alesco’s President & CEO) President & CEO (23 Years of experience) 4 Independ
Slide 13: Sunset Financial Resources
Sunset Financial Resources Page 12
Slide 14: Overview of Sunset Financial Resources
Overview of Sunset Financial Resources Sunset Financial Resources, Inc. (NYSE: SFO), headquartered in Jacksonville, Florida, is a REIT specializing in the acquisition and management of residential mortgage backed securities (“RMBS”) and commercial bridge loans Completed its IPO in March of 2004 In S
Slide 15: Sunset Historical Financials
Sunset Historical Financials Balance Sheet Income Statement ($ in thousands) 3/31/2006(1) 12/31/2005(2) Q1 2006(1) FYE 2005(2) Assets Interest and Fee Income $12,972 $46,356 Cash and Cash equivalents $25,215 $17,570 Interest Expense 9,852 34,788 Commercial Mortgages 21,493 29,347 Net Interest Income
Slide 16: Review of Residential Loan Portfolio
Review of Residential Loan Portfolio (1) Sunset’s residential assets at March 31, 2006 included: • $884.6 million of mortgage backed securities “available for sale” • $156.3 million of purchased loans that were securitized in 2004 (carried at amortized cost) Agency securities had a weighted average
Slide 17: Commercial Loan Portfolio & Peerless Loan Update
Commercial Loan Portfolio & Peerless Loan Update At 3/31/06, there was a total book value of $15.8 million in the portfolio, net of reserves The outstanding balance of the Peerless loan impacts the financial terms of this transaction (see Appendix for details) The Peerless Loan is collateralized by
Slide 18: Alesco Financial Trust
Alesco Financial Trust ZX ALESCO FINANCIAL TRUST
Slide 19: Overview and Recent Developments
Overview and Recent Developments Alesco is a recently-formed REIT, externally managed by Cohen Brothers Management, LLC Closed $111 million 144A equity offering on January 31, 2006 at $10.00 per share Issued dividend of $0.20 per share for the first two months of operation As of March 31, 2006, Ales
Slide 20: Alesco's Investment Strategy
Alesco’s Investment Strategy Attractive targeted asset classes • Low historical default rates • Significant opportunity for investment Strong risk-adjusted returns with short ramp-up period • Rapid deployment of capital • 13% projected dividend yield Established platform and business model • Managem
Slide 21: Targeted Equity Allocation
Targeted Equity Allocation % Equity % Asset Asset Class Allocation Leverage Allocation TRUPS 50% 15X 28% Middle Market Loans 15% 10X 7% Mortgage-Backed Securities 30% 35X 60% Whole Mortgage Loans 5% 25X 5% Page 20
Slide 22: Pooled Bank and Insurance TruPS Market
Pooled Bank and Insurance TruPS Market TruPS and surplus notes are corporate bonds that combine characteristics of both debt and equity • Treated as debt for tax purposes • Treated as Tier 1 capital for regulatory purposes • Partial equity credit from rating agencies Since the first CDO of TruPS iss
Slide 23: Emporia – Middle Market Leveraged Loans
Emporia – Middle Market Leveraged Loans Middle market loans are an attractive asset class • Mature market with total loans outstanding of approximately $1.3trillion (1) • Low default correlation with other asset classes • Low default rates (currently in the 1.7% range) The typical Emporia CLO portfo
Slide 24: Kleros – Asset-Backed Securities
Kleros – Asset-Backed Securities Cohen Brothers has managed two Kleros transactions totaling over $2 billion Kleros CDOs are collateralized by RMBS, CMBS and ABS rated investment grade Securities with these credit ratings have experienced low historical defaults (1) The collateral underlying these s
Slide 25: Financing Strategy
Financing Strategy Asset Class Short-Term Financing Long-Term Financing Collateral accumulates in third party warehouses Collateral held in CDO structures 8% collateral deposit recorded as TruPS restricted cash Alesco intends to hold 51-55% of the preferred equity Interest carry plus change in value
Slide 26: Financial Overview
A ALESCO FINANCIAL TRUST Financial Overview SUNSET. P FINANCIAL RESOURCES ©
Slide 27: Illustrative Economic Models
Illustrative Economic Models Sunset (1) RMBS Commercial Alesco Return on Levered Capital 7.15% 5.70% 9.76% Return on Unlevered Equity 5.00% 12.00% 5.94% Gross ROE 12.15% 17.70% 15.70% % of Total Equity Allocation 90.00% 10.00% 100.00% Allocated Weighted ROE 10.94% 1.77% Gross Portfolio Return on Equ
Slide 28: Comparison of 1st Quarter Financial Results
Comparison of 1st Quarter Financial Results Sunset 1Q 2006 Alesco February & Unaudited Financial March 06 Unaudited Results Financial Results ($ in thousands, except per share amounts) Net income $978 $2,394 Earnings per share - diluted: Earnings per share $0.09 $0.21 Earnings per share (Sunset equi
Slide 29: Stock Price Valuation of Alesco
Stock Price Valuation of Alesco Cohen Brothers entered the Bank Trust Preferred market in 2001 and attained a 35% market share in 2005 Within two months after the initial 144A funding of Alesco on January 31, 2006: • Invested approximately $2.2 billion in targeted asset classes • Declared a $0.20 di
Slide 30: Stock Price Valuation of Combined Company
Stock Price Valuation of Combined Company Applicable Statistics Combined Company (1) Pro Forma Book Value $171.6 MM Net Alesco Return on Capital 14.40% Projected Net Income (Annualized Run Rate) $24.7 MM (1) Pro Forma Shares 22.2 MM Projected Earnings Per Share (Annualized Run Rate) $1.11 Projected
Slide 31: Selected Publicly Traded Companies Analysis
Selected Publicly Traded Companies Analysis Alesco Comps: Price / Book Sunset Comps: Price / Book 1.7 x 1.64x 1.62x 1.7 x Average: 1.31x Average: 0.94x 1.5 x 1.47x 1.46x 1.5 x 1.40x 1.29x 1.3 x 1.3 x 1.24x 1.23x 1.12x 1.08x 1.1 x 1.04x 1.1 x 0.97x 0.90x 0.87x 0.86x 0.9 x 0.9 x 0.83x 0.83x 0.80x 0.76
Slide 32: Summary
A ALESCO FINANCIAL TRUST Summary SUNSET P FINANCIAL RESOURCES ©
Slide 33: Benefits to Shareholders of an Alesco / Sunset Combination
Benefits to Shareholders of an Alesco / Sunset Combination Sunset Shareholders Alesco Shareholders Expected to be accretive to Provides public stock market earnings within the first year of liquidity to Alesco operations shareholders Sunset shareholders benefit Effectively doubles Alesco’s from new
Slide 34: Appendix
A ALESCO FINANCIAL TRUST Appendix SUNSET P FINANCIAL RESOURCES ©
Slide 35: Summary of Sunset's Process
Summary of Sunset’s Process Date Activity October 2005 Special Committee engaged BAS to explore range of strategic alternatives available to the Company Sunset issued press release stating BAS had been retained as a Financial Advisor to the Special Committee November 2005 BAS contacted over 70 parti
Slide 36: Analysis of Sunset's Primary Alternatives
Analysis of Sunset’s Primary Alternatives Estimated valuation per share between $8.41 and $8.98 Risk in value of commercial assets and timing of sale Liquidation To maximize value, Peerless asset might need to be placed in a liquidating trust for a period that could extend beyond one year Approximat
Slide 37: Sunset Liquidation Analysis
Sunset Liquidation Analysis Range of Values Low High Low High ($ million) ($ million) ($ / share) ($ / share) Unaudited Book Value (As of 03/31/2006) $109.6 $109.6 $10.42 $10.42 Adjustments (1) Mark-to-Market of Securitized Loans (6.8) (6.8) (0.65) (0.65) (2) Deferred Financing Fees (0.6) (0.6) (0.0
Slide 38: Sunset Liquidation Considerations
Sunset Liquidation Considerations Process Steps A) (1) Board has to approve liquidation Sell up to 50% of RMBS in orderly process and make initial dividend 30 day period to file proxy with SEC Additional 30 to 60 day period if SEC reviews proxy B) (1) 30 to 45 day consent solicitation period • 2/3 o
Slide 39: Sunset's Stay the Course Overview
Sunset’s Stay the Course Overview RELEVANT METRICS Sunset Financial Resources Maximum Assets $1.3 bn - $1.5 bn Maximum Leverage (multiple of equity) 12x G&A Burden (% of equity) 7.0% Return on Equity 3.5% - 5.1% Estimated Annual Dividend $0.38 - $0.42 Dividend Yield (based on $8.29 share price) 4.6%
Slide 40: Book Value Comparison
Book Value Comparison Summary Book Value Data (1) Combined Combined Sunset Alesco Company Company (Dollars in Thousands) 3/31/2006 3/31/2006 (No Tender) (Full $25M Tender) Book Value Per Share $10.42 (2) $8.92 (3) $8.49 $8.43 Adjustments: Mark-to-market of Securitized Assets (0.65) (0.27) (0.31) Oth
Slide 41: Potential Impact of Peerless Loan on Financial Terms
Potential Impact of Peerless Loan on Financial Terms Exchange ratio of 1.26 and repurchase amount of $25,000,000 assumes an outstanding loan balance of $8,000,000 at July 31, 2006 However, the exchange ratio and repurchase amount will change if the outstanding loan balance on the Peerless property e
Slide 42: Additional Information About this Transaction
Additional Information About this Transaction This material is not a substitute for the proxy statement/prospectus Sunset will file with the Securities and Exchange Commission. Investors are urged to read the proxy statement/prospectus which will contain important information, including detailed ris
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