FOR IMMEDIATE RELEASE:
November 15, 2006

Contact
Kevin Kuykendall, Principal, Energy Group (214) 273-6634
Scott Pinsonnault, Vice President, Energy Group (214) 273-6659
Brian Maney, Director, Corporate Communications (301) 951-6122

AMERICAN CAPITAL INVESTS $50 MILLION IN VAREL HOLDINGS

Bethesda, MD - November 15, 2006 - American Capital Strategies Ltd. (Nasdaq:ACAS) announced today it has invested $50 million in the recapitalization of Varel Holdings Inc., parent to Varel International Ltd., a worldwide designer and manufacturer of roller-cone and polycrystalline diamond compact  ("PDC") drill bits for the oil & gas and mining industries.  American Capital?s investment takes the form of a senior unirate loan and junior subordinated debt.  Apollo Investment Corporation, transaction leader, is also investing in a senior unirate loan and junior subordinated debt.  KRG Capital Partners, L.L.C. maintains its majority ownership of the Company.

"Varel International, an exceptionally well-managed company that is setting the pace in drill bit manufacturing for the oil & gas industries, is an excellent addition to the Energy?s Group portfolio of investments," said American Capital Regional Managing Director Darin Winn.  "It is a special pleasure to be working once again with American Capital's long-standing private equity partner KRG Capital Partners to support the recapitalization of their portfolio company."

American Capital has invested directly and through its funds under management $6.1 billion in the last twelve months, $5.3 billion year to date and $873 million quarter to date.  Not including funds under management, American Capital has invested $4.7 billion in the last twelve months, approximately $4 billion year to date and $558 million quarter to date. For more information about American Capital's portfolio, click here.

"Varel, through innovation, customization and an expanded sales force, is building market share in an industry whose growth is driven by increasing energy demands and the need for ever more sophisticated technology to access more challenging drill sites," said American Capital Principal Kevin Kuykendall.  "Varel's experienced and energetic management team has made savvy investments in the automation and optimization of its manufacturing operations.  Varel has also significantly expanded its dedicated sales force and engineering resources, both in the U.S. and internationally, leading to particularly strong growth in Latin America, Europe and the Middle East."

"Varel has developed proprietary PDC drill bit technology that places it at the forefront of the fast-growing, high-margin segment of the oilfield service sector," said American Capital Vice President Scott Pinsonnault.  "The Company?s innovative culture, customization capabilities, development partnerships as well as the recent enhancement of engineering resources ensure a continuing pipeline of new products."

Founded in 1947, Varel is a leading designer and manufacturer of roller-cone and PDC drill bits for the global oil & gas and mining industries.  A global business, Varel markets drill bits in 85 countries and generates approximately half of its revenues outside the United States.  Varel?s major customers include ExxonMobil Corporation, Occidental Petroleum Company, Saudi Arabian Oil Company, Total, Sonatrach, Kuwait Oil Company and Royal Dutch Shell plc.  The Company is headquartered in Carrollton, TX.  It has manufacturing facilities in Carrollton, Houston, TX, Matamoros, Mexico and Tarbes, France, as well as sales offices throughout the world.  Varel has more than 1,000 employees.

"We have developed a great working relationship with American Capital over the past seven years and consider them to truly be a value-added lender," said KRG Capital Partners Managing Partner Chuck Hamilton.  "American Capital's Energy Group, with its growing portfolio and industry knowledge, brought especially valuable insights to facilitate this transaction. "

ABOUT AMERICAN CAPITAL ENERGY GROUP

The American Capital Energy Group invests senior debt, subordinated debt and equity across all segments of the energy industry, including equipment manufacturing, production, transportation, distribution, and services in oil & gas, ethanol and power. Companies interested in learning more about American Capital's energy initiative should contact Kevin Kuykendall at (214) 273-6634, or visit the website at www.acas.com/energy.

ABOUT AMERICAN CAPITAL

American Capital is a publicly traded buyout and mezzanine fund with $11.5 billion in capital resources under management. American Capital invests in and sponsors management and employee buyouts, invests in private equity buyouts, provides capital directly to early stage and mature private and small public companies and through its asset management business is a manager of debt and equity investments in private companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations. American Capital invests from $5 million to to $500 million per company.

As of October 31, 2006, American Capital shareholders have enjoyed a total return of 556% since the Company's IPO - an annualized return of 23%, assuming reinvestment of dividends. American Capital has paid a total of $1.3 billion in dividends and paid or declared $22.44 dividends per share since its August 1997 IPO at $15 per share.

Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit www.AmericanCapital.com.

ABOUT KRG CAPITAL PARTNERS

Founded in 1996, KRG Capital Partners is a Denver-based private equity buyout firm that currently manages over $2 billion of committed equity capital and equity co-investments.  KRG specializes in acquiring and recapitalizing middle-market companies.  Since inception, KRG has invested in 25 platform companies and has completed 69 add-on acquisitions for those platforms.  American Capital has provided financing and invested with KRG in nine other portfolio companies: Case Logic Inc., a designer and manufacturer of storage products and accessories; Chronic Care Solutions Inc., doing business as CCS Medical, a leading national direct-to-consumer, mail-order chronic illness supply company focused primarily on diabetic supplies; CIVCO Holdings Inc., a global specialist in the design, manufacture and marketing of specialized medical products for ultrasound and minimally invasive surgical equipment and procedures; FMI International Inc., a third party logistics provider to the U.S. apparel industry; HMS Healthcare Inc., a holding company for non-risk access preferred provider organizations; Interior Specialists Inc., a leading provider of outsourced interior design and installation services for homebuilders in the Southwestern U.S.; The Tensar Corporation, a full-service provider of specialty products and engineering services used for site development, transportation and environmental infrastructure; TransCore Holdings Inc., a provider of transportation information management systems and services; and Trinity Hospice, a provider of hospice care.

Performance data quoted above represents past performance of American Capital. Past performance does not guarantee future results and the investment return and principal value of an investment in American Capital will likely fluctuate. Consequently, an investor's shares, when sold, may be worth more or less than their original cost. Additionally, American Capital's current performance may be lower or higher than the performance data quoted above.

This press release contains forward-looking statements. The statements regarding expected results of American Capital 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, national or international economic conditions, or changes in the conditions of the industries in which American Capital has made investments.

This announcement is neither an offer to sell nor a solicitation to buy securities.
This announcement appears as a matter of record only.