SecProbe.io

CORRESP
1
filename1.htm

Alesco Financial Inc.

 January 21, 2009

 VIA EDGAR

 Linda van Doorn

 Senior Assistant Chief Accountant

 Securities and Exchange Commission

 Division of Corporation Finance

 100 F
Street, N.E.

 Washington, D.C. 20549

 Re:

 Alesco Financial Inc.

 Form 10-K for the year ended December 31, 2007

 Definitive Proxy Statement on
Schedule 14A filed on April 29, 2008

 Form 10-Q for the quarter ended September 30, 2008

 File No. 001-32026

 Dear Ms. van Doorn:

 On behalf of our client, Alesco Financial Inc. (the “Company”), we are transmitting for filing
the Company’s responses to the comments of the staff of the Division of Corporation Finance (the “Staff”) contained in your letter, dated December 31, 2008, to Mr. James J. McEntee, III of the Company. For convenience
of reference, each Staff comment contained in your letter is reprinted below in italics, numbered to correspond with the paragraph numbers assigned in your letter, and is followed by the corresponding response of the Company.

 Form 10-K for the year ended December 31, 2007

 Item 1 – Business, page 11

 1.

 You disclose that your manager performs certain legal, accounting, due diligence tasks, and other services that outside professionals or outside consultants
otherwise would perform and that your manager is not paid or reimbursed for the time required to perform such tasks. Please quantify the amount of these services and tell us if the value of these services is recorded in your financial statements.
Please refer to SAB Topics 1(B) and 5(T).

 Response:

 Cohen Brothers, LLC (“Cohen”) is the sole shareholder of Cohen & Company Management, LLC, the Company’s manager.
At the time the Company was formed in 2006, Cohen already was operating a significant asset management business. Cohen had in-house personnel capable of providing some of the types of services that a new company might otherwise obtain from outside
professionals, including legal, accounting and asset due diligence services. As part of the negotiations of the management agreement, the parties agreed that Cohen would make its in-house personnel available to the Company as part of the management
services to be provided under the management agreement in consideration of the base management fee payable under the management agreement. Accordingly, the Company is not required to separately reimburse

 Securities and Exchange Commission

 January 21, 2009

  Page
 2

 Cohen for those services. In future filings, the Company will clarify that such services are part of the services being provided to the Company in consideration of the management fees.

 For the year ended December 31, 2007, the Company incurred $5.9 million of base management fees and $0.4 million of incentive
management fees under the management agreement. However, the Company was not required to pay these fees to its manager because they were more than offset by the $15.5 million of CDO management fees incurred by the Company’s consolidated CDO
entities, which are also managed by Cohen. The Company’s management agreement with its manager provides that the base and incentive management fees payable thereunder will be offset by fees paid to Cohen by the CDO issuers in which the Company
invests in order to ensure that Cohen and its affiliates are not paid twice for managing the Company’s assets.

 Item 9A -
Controls and Procedures, page 89

 2.

 Please clarify whether management’s assessment of the effectiveness of your internal control over financial reporting was that they are effective and if
so, confirm that you will include a clear statement in the future as to whether or not the internal controls are effective or ineffective.

 Response:

 The Company confirms that its management
concluded that the Company’s internal controls over financial reporting were operating effectively at December 31, 2007. In future filings, the Company will include a clear statement as to whether or not the internal controls over
financial reporting are effective or ineffective.

 Consolidated Statements of Income (Loss), page F-4

 3.

 We note that you present a subtotal titled “Income before interest and other income, minority interest and taxes” on the face of your statements of
income. In future filings please remove this subtotal and present all operating expenses together.

 Response:

 The captions presented below the subtotal titled “Income before interest and other
income, minority interest and taxes” are comprised of non-operating amounts that are described in paragraphs 210.5-03(b)7 and 210.5-03(b)9 of Regulation S-X. In future filings, the Company will remove this subtotal and present the amounts under
a heading titled “Non-operating Income and Expenses.”

 Consolidated Statements of Stockholders’ Equity (Deficit), page
F-6

 4.

 You disclose that you purchased minority interest preference shares in 2007 which resulted in a debit to APIC in an amount of $4.7 million. Please provide us
with details of this transaction, how you accounted for it, and the accounting guidance that you relied upon to determine the appropriate accounting treatment.

 Response:

 During the three-months ending December 31, 2007, the Company purchased a net $4.7 million of additional TruPS CDO preference shares of entities in which the Company already held a

 Securities and Exchange Commission

 January 21, 2009

  Page
 3

majority of the preference shares. The Company acquired these additional shares in open market transactions from unrelated third parties. The Company
consolidated the CDO entities in accordance with Financial Accounting Standard Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) both before and after giving effect to
the purchases of the additional preference shares. The Company accounts for preference shares of consolidated CDOs held by third parties as minority interests. The Company accounted for the purchases as capital stock transactions in accordance with
Emerging Issues Task Force Issue No. 86-32, “Early Extinguishment of a Subsidiary’s Mandatorily Redeemable Preferred Stock” (“EITF 86-32”).

 The Discussion section of EITF 86-32 states:

 “The Task Force
reached a consensus that the enterprise’s acquisition of a subsidiary’s mandatorily redeemable preferred stock should be accounted for as a capital stock transaction. Accordingly, the consolidated entity would not recognize in its income
statement any gain or loss from the acquisition of the subsidiary’s preferred stock.”

 The consensus in EITF
86-32 was partially nullified by Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). However, the Status
section of EITF 86-32 further states:

 “If the stock contains a redemption feature but is not considered a
mandatorily redeemable financial instrument under Statement 150, the consensus in this Issue still applies.”

 The
CDO preference shares which the Company purchased are redeemable only upon the liquidation of the CDO entity; therefore, the Company has concluded that in accordance with SFAS 150, CDO preference shares are not a mandatorily redeemable financial
instrument. Since the CDO preference shares are not a mandatorily redeemable financial instrument, the Company recorded the purchases as a capital stock transaction in accordance with EITF 86-32. The carrying value of the minority interests acquired
was zero at the time of acquisition and therefore, the Company recorded the transaction price paid as an adjustment to stockholders’ equity.

 Note 2: Summary of Significant Accounting Policies, page F-9

 5.

 We note that on page 39 you discuss your obligation to reacquire loans under certain circumstances. Please tell us what consideration you gave to disclosing
your accounting policies related to this obligation for transfers accounted for both as sales and financings under SFAS 140.

 Response:

 During the three-months ended June 30, 2007, the Company
completed its only residential mortgage loan securitization. In connection with the securitization transaction, the Company purchased all of the $65.2 million of subordinated notes and residual interests (i.e., first risk loss position) included
within the securitization entity’s capital structure. As a result of the Company’s continuing involvement with the approximately $1.1 billion of transferred residential mortgage loans, the Company did not account for the transaction as a
sale and the Company continues to include the residential mortgage loans within its consolidated financial statements. The Company would like to respectfully bring to the Staff’s attention that the Company also consolidates the securitization
entity pursuant to FIN 46(R) and the related financing transaction eliminates in consolidation. In future filings, the Company will clarify the disclosure to

 Securities and Exchange Commission

 January 21, 2009

  Page
 4

distinguish between a legal repurchase of assets versus a purchase as defined by U.S. generally accepted accounting principals. As of the current date, the
Company has not completed a legal repurchase of any of these residential mortgage loans from the securitization entity.

 Note 4: Loans,
page F-19

 6.

 We note that you record all of your loans at amortized cost. Please tell us how you determined as of December 31, 2007 and September 30, 2008 that
you had the intent and ability to hold these loans receivable for the foreseeable future or until maturity. Please tell us how you considered your current financial condition and liquidity demands, your current business plan, the current economic
environment and related market conditions, and your past practices when making this determination. Please specifically address the fact that you sold approximately $516.2 million of adjustable rate residential mortgages at realized losses of $2.0
million in the year ended December 31, 2007 and recorded realized losses on the sale of leveraged loans and your residential mortgage portfolio in amounts of $1.4 million and $1.8 million, respectively, in the nine months ended
September 30, 2008; please tell us the reasons for these sales and how the sales affected your conclusions regarding your remaining loans. For reference, please see SFAS 65 and SOP 01-6.

 Response:

 The Company’s primary strategic objective is to hold its loan receivables to maturity and generate net investment income. In making a determination of its ability and intent to hold these loans, the Company
primarily considers the term of its financing arrangements, potential for margin calls or other types of capital requirements that could impact its liquidity position, and its ability to maintain its REIT status. As of December 31, 2007 and
September 30, 2008, the Company had approximately $1.9 billion and $1.8 billion, respectively, of investments in loan receivables recorded in its consolidated financial statements.

 As of December 31, 2007, approximately 99.5% of the Company’s residential mortgage loans and 100% of the Company’s
leveraged loans were financed on a long-term basis. The remaining portion of the portfolio is not subject to any financing arrangements. These financing arrangements do not subject the Company to potential margin calls or potential recourse
obligations in excess of its initial first loss investment. The residential mortgage loans were financed on a long-term basis through an on-balance sheet securitization vehicle and the average contractual maturity of the financing was March 2017. At
that time, the Company’s investments in this residential mortgage loan portfolio were, and, currently for the foreseeable future, the Company’s investments continue to be, integral to ensuring its compliance with the REIT asset and income
tests.

 As of December 31, 2007, the Company had $837 million of investments in leverage loans, of which $661 million
were financed on a long-term basis through CLOs and the remaining $176 million were financed through an on-balance sheet warehouse facility. The average contractual maturity of the CLO financing is February 2013 and the warehouse facility matures in
May 2009. At the time the 2007 financial statements were filed, it was the Company’s intention and belief that the existing warehouse arrangement would be refinanced into a long term securitization vehicle, or that the Company would obtain
another means of long-term financing for the warehoused assets.

 During the three-months ended March 31, 2007, the
Company made the decision to sell $516.2 million of residential mortgage loans. The sale of the residential mortgage loans resulted from

 Securities and Exchange Commission

 January 21, 2009

  Page
 5

management’s determination that the Company no longer needed to hold these investments in order to ensure compliance with the REIT requirements. As
noted above, the Company securitized the remaining portion of its residential mortgage loan portfolio in the following quarter with the intent to hold these loans for investment purposes to ensure its continued compliance with the REIT requirements.
Based on the reasons stated above, at each reporting period in 2007 and 2008, the Company concluded that it had the ability and intent to hold its loan receivables for the foreseeable future or until maturity.

 As of September 30, 2008, approximately 99.8% of the Company’s residential mortgage loans remained financed in the residential
mortgage loan securitization discussed above. As of September 30, 2008, approximately 80.3% of the Company’s leveraged loan investments were financed on a long-term basis through CLOs and the remaining 19.7% were financed through an
on-balance sheet warehouse facility that matures in May 2009. Based on the same reasons as stated above, at each reporting period in 2007 and 2008, the Company concluded that it had the ability and intent to hold its loan receivables for the
foreseeable future or until maturity. In determining the intent and ability to hold the loans, the Company considered its past practices regarding disposition of loans, in particular the sale of certain leveraged loans and residential mortgage loans
during the nine months ended September 30, 2008. These sales occurred due to borrower credit related changes that were identified in the same period in which the sales were executed.

 Note 7: Minority Interests, page F-28

 7.

 Based on your statement of cash flows and your footnote, it appears that you paid cash in an amount of $12.9 million for additional CDO investments. Please
provide us with more details regarding these acquisitions and the accounting guidance that you relied upon to determine the appropriate accounting treatment.

 Response:

 During the year ending December 31, 2007, the Company purchased a net $12.9 million of additional TruPS CDO preference shares of entities in which the Company already held a majority of the preference shares. The
Company acquired these additional shares in open market transactions from unrelated third parties. The Company consolidated the CDO entities in accordance with FIN 46(R) both before and after giving effect to the purchases of the additional
preference shares. The Company accounts for preference shares of consolidated CDOs held by third parties as minority interests. The Company accounted for the purchases as capital stock transactions in accordance with EITF 86-32.

 The Discussion section of EITF 86-32, “Early Extinguishment of a Subsidiary’s Mandatorily Redeemable Preferred Stock” (EITF
86-32) states:

 “The Task Force reached a consensus that the enterprise’s acquisition of a subsidiary’s
mandatorily redeemable preferred stock should be accounted for as a capital stock transaction. Accordingly, the consolidated entity would not recognize in its income statement any gain or loss from the acquisition of the subsidiary’s preferred
st