Business Context and Reporting Period
This Form 8-K, dated December 15, 2009, reports the completion of a business combination between Alesco Financial Inc. (now Cohen & Company Inc.) and Cohen Brothers, LLC. The transaction closed on December 16, 2009, resulting in Cohen Brothers becoming a majority-owned subsidiary of the Company. Concurrently, the Company changed its name to Cohen & Company Inc., executed a 1-for-10 reverse stock split, and transferred its stock listing from the NYSE to the NYSE Amex under the ticker symbol "COHN."
Key Financial Metrics and Capital Structure
- Debt Obligations: As of December 16, 2009, the Company held $26.2 million in principal amount of convertible senior debt and $48.1 million in principal amount of junior subordinated notes.
- Credit Facility: Cohen Brothers maintains a credit facility with TD Bank, N.A. The maximum revolving credit amount is $28.0 million. As of December 16, 2009, $24.95 million was drawn, $1.29 million was committed for letters of credit, and $1.76 million remained available.
- Liquidity Requirements: The credit facility mandates a minimum consolidated net worth of $40 million (increased from $30 million) and a minimum liquidity amount equal to outstanding advances.
- Related Party Debt: Cohen Brothers holds subordinated notes with an outstanding principal of $6.2 million owed to former stockholders of Cohen Financial Group, Inc., bearing 12% annual interest (9% cash, 3% in-kind).
- Equity Ownership: Post-combination, the Company owns approximately 66.2% of Cohen Brothers membership units. Pre-combination stockholders own 58.2% of the Company's common stock, while Cohen Brothers members own 41.8%.
Material Changes Versus Prior Period
- Corporate Structure: The Company transitioned from a holding company with operations in various subsidiaries to a holding company conducting operations primarily through Cohen Brothers.
- Management Changes: James J. McEntee, III resigned as CEO and Director. John J. Longino and Christian Carr stepped down as CFO and Chief Accounting Officer, respectively. Daniel G. Cohen was appointed CEO and Chief Investment Officer; Christopher Ricciardi was appointed President; Joseph W. Pooler, Jr. was appointed CFO; and Douglas Listman was appointed Chief Accounting Officer.
- Board Composition: The Board of Directors was expanded from nine to ten members, with the appointment of Joseph M. Donovan and Walter Beach.
- Stock Structure: Implementation of a 1-for-10 reverse stock split and the issuance of Series A and Series B Voting Preferred Stock to Daniel G. Cohen, granting him approximately 31.9% of the Company's voting power.
Guidance, Outlook, Risks, and Unusual Items
The filing contains forward-looking statements subject to risks including declines in general economic conditions, losses from third-party financial problems, lack of liquidity, and competitive pressure. The Company explicitly states it does not undertake any obligation to update these statements.
Restrictions: The 2009 Credit Facility and the Amended and Restated LLC Agreement impose working capital restrictions and limitations on the payment of dividends. Cohen Brothers is also limited in the amount of capital it can invest in non-guaranteeing subsidiaries.
Unusual Items: The transaction involved a complex exchange of membership units for common stock and preferred stock, including a specific voting arrangement for Daniel G. Cohen via Series A and Series B Preferred Stock, which are automatically redeemable for par value on December 31, 2012.
Investor Verification Checklist
- Verify the pro forma financial information, which is not included in this initial filing but will be filed by amendment.
- Review the Proxy Statement/Prospectus (Form S-4/A, File No. 333-159661) for detailed terms of the Merger Agreement, LLC Agreement, and executive compensation plans.
- Confirm the specific terms and covenants of the $28.0 million credit facility with TD Bank, particularly regarding the $40 million net worth requirement.
- Assess the impact of the 31.9% voting control held by Daniel G. Cohen through the Series B Preferred Stock on corporate governance.
- Monitor the status of the $6.2 million subordinated notes owed to related parties and their 12% interest rate structure.