Bethesda, MD - April 15, 2004 - American Capital Strategies Ltd. (Nasdaq:ACAS)announced today that it has completely exited investments in three portfolio companies, realizing $60 million in losses on debt and equity assets that had been substantially depreciated in previous periods. The unrealized depreciation will be reversed and the realized losses will be recorded in the first quarter of 2004, netting to $8 million of loss not previously recognized. These exits will remove $37 million of loans from the non-accrual category. American Capital's dividend forecast for 2004 of $2.88 to $3.00 per share will not be impacted by realizing these losses.
"With the recovering economy and significantly improved M&A market, American Capital is naturally reviewing our portfolio to consider exiting some of both our winners and losers," said American Capital CEO Malon Wilkus. "While we hate realizing losses, it is an inevitable part of investing and factored into our business model and annual forecasts. We are proud that through a very difficult economic environment our annual rate of net realized loss totaled 1% from our IPO in 1997 through the first quarter of 2004, including the losses noted above. We expect to have realized gains during 2004 that will offset these realized losses and improve on this performance."
"These realizations are consistent with our 2004 business plan and do not require any change to our 2004 forecast of $2.88 to $3.00 per share in dividends," said American Capital CFO John Erickson. "These realizations will also not have a significant impact on our book value or net operating income in the first quarter of this year since most of the amounts were depreciated and placed on non-accrual in previous years."
Since its August 1997 IPO, American Capital has earned a 14% compounded annual return on 59 exits and prepayments of senior debt, subordinated debt and equity, totaling $708 million of invested capital, including announced exits through the first quarter of 2004 and the losses noted above. These exits and prepayments represent 25% of all announced investments made since our August 1997 IPO through the first quarter of 2004. Proceeds from these exits and prepayments exceeded the associated prior quarter's valuation of the investments by $27 million in aggregate, or 5%. Thirty-one 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. From its 1997 IPO through the first quarter of 2004, American Capital's annual rate of net realized loss on its investments was 1% of assets based on American Capital's cash investments less its cash exits and repayments including the cost basis of its cash investments at period end.
For a chart detailing American Capital realized gains and losses click here.
For a chart listing American Capital's exited portfolio companies click here.
Chromas Technologies Corp.
Chromas manufactures digital and analog printing presses for the packaging and labeling industry. American Capital made its initial investment in Chromas in September 2000 and it made subsequent investments to bring the total to $34 million. American Capital's thesis for the investment was that Chromas' newly developed digital printing technology together with its substantial market share positioned Chromas to be a leader in its industry with substantial growth opportunities. With the extreme capital goods recession that occurred subsequent to the investment, not only did the new digital press business fail to gain sales, but their analog press business declined dramatically. American Capital's operations team assisted the company in significantly reducing costs in order to operate in a low revenue environment but the company could not achieve satisfactory results and there were no signs that the printing press market was recovering. Therefore, in March 2004, the assets of Chromas were sold to F.L. Smithe, a manufacturer of machine products for the envelope manufacturing industry. American Capital has completely exited its investment in Chromas Technologies, realizing $32 million in losses. Including cash collections of interest and fees, this results in a negative rate of return of (58)%. The net proceeds recognized by American Capital were $2 million less than the fourth quarter 2003 valuation of the investment.
Sunvest Industries Inc.
Sunvest was a platform holding company established to acquire contract manufacturers serving the semiconductor, pharmaceutical, medical and specialty OEM markets. American Capital made its intial investment in Sunvest in December 2000 and made subsequent investments that brought its investment total to $14 million. In January 2001 Sunvest completed the purchase of Dyna-Fab LLC and Advanced Fabrication Technology LLC. The performance of Sunvest was significantly impacted by the severe decline in the technology, telecomunications and capital goods industries from 2001 through 2003. Tremendous excess capacity exists in the contract manufacturing market due to the industry decline as well as the movement of electronics manufacturing to Asia. Therefore, despite the signs of improvements in the economy, American Capital became concerned about the prospects of an industry recovery in a reasonable period. In March 2004, American Capital foreclosed on the remaining assets of Sunvest, resulting in a realized loss of $14 million. Including cash collections of interest and fees, this results in a negative rate of return of (42)%. The net proceeds recognized by American Capital were approximately $0.7 million more than the fourth quarter 2003 valuation of the investment.
Academy Event Services LLC
In September 2002, American Capital invested $27 million in Academy, one of the largest tent manufacturers, and a leading tent and accessories lessor for the special events equipment rental market. The company provided tents to events such as: the Rose Bowl, the Academy Awards, the US Open, the Kentucky Derby, the Super Bowl and the Bell South Classic, as well as the 2002 Winter Olympics. In April 2003, Academy repaid $13 million of our investment from new financing provided by Citibank. Late in 2003, American Capital's Financial Analysis and Compliance Team (FACT) performed a field audit and became aware of inventory and accounting issues that were not raised in the accounting due diligence performed by a third party during the underwriting of the initial investment. During the remainder of 2003, the company raised from parties other than American Capital more than $3 million of equity. American Capital elected not to provide additional liquidity due to the findings of its due diligence. In February 2004, Academy entered Chapter 11 bankruptcy and in March 2004 the court conducted an auction for a sale of all of its assets. American Capital does not expect to receive any proceeds from the bankruptcy proceedings, resulting in a realized loss of $14 million. Including cash collections of interest and fess, this results in a negative rate of return of (69)%. The net proceeds recognized by American Capital were $6 million less than the fourth quarter 2003 valuation of the investment.
As of March 31, 2003, American Capital shareholders have enjoyed a total return of 296% since the Company's IPO -- an annualized return of 23%, assuming reinvestment of dividends. American Capital has declared a total of $13.82 per share in dividends since its August 1997 IPO.
American Capital is a publicly traded buyout and mezzanine fund with capital resources in excess of $2.7 billion. American Capital is an investor in and sponsor of 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.
