Bethesda, MD - October 14, 2003 - American Capital Strategies Ltd. (Nasdaq:ACAS)announced today that it has sold investments in three portfolio companies for a nominal sale price, realizing $20 million in losses. American Capital also announced that it realized additional losses of $7 million as the result of the recapitalization of two portfolio companies. These realized losses were recorded in the third quarter and the total fair value of these five investments at June 30, 2003 was $0.02 million. For the past year, these have been non-earning assets. Year-to-date, net realized gains announced by American Capital total $16 million.
"We have projected $10 million to $30 million of net realized gains for 2003 and continue to be on track to meet that goal," said American Capital CFO John Erickson. "Our tax year ends September 30th, and these losses will offset previously realized gains."
Since its August 1997 IPO, American Capital has earned a 19% compounded annual return on 42 exits and prepayments of senior debt, subordinated debt and equity, totaling $457 million, including announced exits through the third quarter of 2003 and the losses noted above. These exits and prepayments represent 20% of all investments made since our August 1997 IPO through the third quarter of 2003. Proceeds from these exits and prepayments exceeded the associated prior quarter's valuation of the investments by $28 million in aggregate, or 7%. Thirty-three percent of these exits and prepayments were from portfolio companies that had at one time been either a loan grade 1 or 2 in American Capital's four point loan grading system, with 1 being the lowest loan grade.
For a chart detailing these gains and losses click here.
For a chart listing American Capital's exited companies click here.
SALE OF ASSETS:
Westwind Holdings Inc.
In December 1997, American Capital invested $3.6 million in senior subordinated notes and warrants of Westwind Holdings Inc., an affiliate of The Westwind Group, at that time the third-largest franchisee of Burger King restaurants in the U.S. Through a recapitalization in 2001, American Capital exchanged its senior subordinated notes and warrants for preferred stock and common stock in Westwind. In May 2003, Westwind filed for Chapter 11 bankruptcy and proceeded to liquidate its remaining assets. As a result of the sale of this investment, American Capital recorded a realized loss of $3.6 million. Including cash collections of interest and fees, this results in a compounded annual rate of return of (23%). As of June 30, 2003, American Capital's investment in Westwind was carried at a fair value of zero, the value at which it has been carried since the third quarter of 2002.
Parts Plus Group Inc.
In October 1999, American Capital invested $5 million in subordinated debt, preferred stock and common stock warrants in Parts Plus Group Inc., an auto parts distributor in the eastern United States. In March 2003, Parts Plus filed for Chapter 11 bankruptcy and proceeded to liquidate its remaining assets. As a result of the sale of its investment, American Capital recorded a realized loss of $5.4 million. The realized loss attributable to accrued payment-in-kind or PIK interest loans was $0.6 million. Including cash collections of interest and fees, this results in a compounded annual rate of return of (55%). As of June 30, 2003, American Capital's investment in Parts Plus was carried at a fair value of $15,000.
Fulton Bellows & Components Inc.
In March 2000, American Capital invested in the senior debt, senior subordinated debt and preferred stock of Fulton Bellows & Components Inc., in addition to providing a revolving line of credit. American Capital subsequently provided additional financing to Fulton for working capital and to finance its acquisition of certain assets of Standard-Thomson Company. Also as part of an earlier recapitalization, American Capital converted $4.2 million of debt investments into preferred stock. American Capital has invested a total of $32 million in Fulton, including a total of $10.9 million in preferred stock. In June 2003, Fulton filed for Chapter 11 bankruptcy. American Capital has now sold all of its preferred stock investments in Fulton, realizing a loss of $10.9 million, resulting in a compounded annual rate of return of (100%). As of June 30, 2003, American Capital's preferred stock investments in Fulton were carried at a fair value of zero, the value at which it has been carried since the second quarter of 2002. American Capital still retains its common stock warrant and senior and senior subordinated debt investments in Fulton.
RECAPITALIZATIONS:
The New Piper Aircraft Inc.
As a result of the previously announced recapitalization of the New Piper Aircraft Inc. in July 2003, American Capital realized a loss of $2.2 million to reflect the disposal of its original common stock warrants. As of June 30, 2003, American Capital had written down its original common stock warrants in New Piper Aircraft to a fair value of zero.
NewStarcom Holdings Inc.
In September 2003, American Capital completed a recapitalization of Starcom Holdings Inc. through a newly created company, NewStarcom Holdings Inc. Under the terms of the recapitalization, American Capital exchanged the senior debt of Starcom it purchased in June 2003 for preferred equity in NewStarcom. In addition, American Capital's existing subordinated notes issued by Starcom and its subsidiaries were refinanced with the proceeds of new subordinated notes issued by NewStarcom. Another existing investor in Starcom also exchanged its subordinated notes for preferred equity of NewStarcom and also provided $2 million of new subordinated debt financing to NewStarcom. American Capital realized a loss of $4.5 million to write off its common equity investment in Starcom Holdings as a result of the recapitalization. As of June 30, 2003, American Capital carried its common equity investment in Starcom at a fair value of zero, the value at which it has been carried since the fourth quarter of 2002.
As of September 30, 2003, American Capital shareholders have enjoyed a total return of 183% since the Company's IPO -- an annualized return of 19%, assuming reinvestment of dividends. American Capital has paid or declared a total of $12.37 per share in dividends since its August 1997 IPO at $15 per share.
American Capital is a publicly traded buyout and mezzanine fund with capital resources of approximately $2 billion. American Capital is an equity partner in management and employee buyouts; invests in private equity sponsored buyouts, and provides capital directly to private and small public companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions and recapitalizations.
Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Principal, at (800) 248-9340, or visit our website.
This press release contains forward-looking statements. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which American Capital has made investments.
