With the seizure of Indymac Bancorp (IDMC.PK), Alesco Financial's (AFN) CDO agony has reached a crisis point. Alesco reported that the seizure of IndyMac will cause AFN to record a realized tax loss of approximately $86 million. The realized tax loss is expected to significantly offset AFN's expected 2008 taxable income including the non-cash income relating to the CDOs that are failing overcollateralization tests as of June 30, 2008.
In addition, subsequent to the original IndyMac deferral, four additional banks elected to defer interest payments on their trust preferred securities, which has resulted in the failure of overcollateralization tests in two additional CDOs in which Alesco holds equity interests.
Without taxable income, Alesco can remain a REIT for the remainder of 2008 without a dividend obligation. However, as its portfolio of CDOs continue to crumble, one has to wonder if Alesco's business model can remain viable.
In addition, subsequent to the original IndyMac deferral, four additional banks elected to defer interest payments on their trust preferred securities, which has resulted in the failure of overcollateralization tests in two additional CDOs in which Alesco holds equity interests.
Without taxable income, Alesco can remain a REIT for the remainder of 2008 without a dividend obligation. However, as its portfolio of CDOs continue to crumble, one has to wonder if Alesco's business model can remain viable.
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