FOR IMMEDIATE RELEASE:
January 18, 2007

Contact
Frank Do, Managing Director (310) 806-6280
Brian Martin, Vice President (310) 806-6280
Brian Maney, Director, Corporate Communications (301) 951-6122

AMERICAN CAPITAL INVESTS $41 MILLION IN ONE STOP BUYOUT™ OF PACIFIC HANDY CUTTER

Bethesda, MD – January 18, 2007 – American Capital Strategies Ltd. (Nasdaq:ACAS) announced today that in the fourth quarter of 2006 it and an affiliate invested $41 million in the One Stop Buyout™ of Pacific Handy Cutter Inc. (“PHC”), a leading designer, manufacturer and marketer of branded razor cutting tools with enhanced safety features for the store supply and safety market.  American Capital’s investment takes the form of a senior term A loan, senior and junior subordinated debt and equity.  American Capital is also providing a revolving credit facility.  American Capital Equity Fund I LLC (“ACE”), a fund managed by American Capital, provided 30% of the equity investment.  Post close, American Capital and ACE will own approximately 78% of PHC, on a fully diluted basis.

“We are supporting a pioneer in the razor tool industry.  Since its inception over 50 years ago, Pacific Handy Cutter has standardized the method by which grocery chains and retail operations process their merchandise,” said Darin Winn, American Capital Regional Managing Director.  “This transaction again demonstrates American Capital’s ability to quickly respond to an attractive investment opportunity and invest throughout the entire capital structure of the transaction.”

American Capital has invested directly and through its funds under management approximately $6.3 billion in 2006, $1.8 billion in the fourth quarter of 2006 and $93 million year to date.  Not including funds under management, American Capital has invested approximately $4.8 billion in 2006, $1.3 billion in the fourth quarter of 2006 and $69 million year to date.  For more information about American Capital’s portfolio, click here.

“Pacific Handy Cutter’s cutting-edge technology, unique product design and development capabilities give the Company a first-to-market competitive advantage, which allows it to patent new products.  The majority of PHC’s razor tools are covered by utility and design patents on ergonomic styling, spare blade compartments, permanent safety guard features and hybrid plastic,” said Frank Do, American Capital Managing Director.  “PHC is one of few companies in its industry with the scale to service larger retail or grocery customers. The Company has a knowledgeable in-house sales team that has generated not only a loyal customer base, but also a leading market share. Over the years, PHC's sales team has built excellent relationships with its buyers to consistently meet the needs of its Blue Chip customer base.”

“In an effort to create safe work environments and manage insurance costs, customers are implementing the use of our razor cutting tools with enhanced safety features to minimize injuries and costs.  With products that consistently exceed the razor tool industry’s safety standards, PHC plans to meet the safety needs for companies in both the U.S. and abroad, including Western Europe, Mexico and Australia,” said Brian Martin, American Capital Vice President. “In addition, the movement toward do-it-yourself home improvement has increased the consumer demand for safety tools, which in turn has lead to more ergonomic products.”

Founded in 1950, Pacific Handy Cutter is based in Costa Mesa, CA and has presence in England.  Along with the Company’s patented flagship product the Safety Cutter (S-Series), PHC manufactures other popular brands including the original Pacific Handy Cutter™, QuickBlade™ Utility Knife Series, and the RZ3 Safety utility knife.  Customers include well-known retailers and grocers Wal-Mart, Safeway, Kroger, Albertson, Office Depot, Ace Hardware and Snap-On.

“American Capital’s team of investment professionals was able to recognize the growth potential of Pacific Handy Cutter within the safety products industry and carve out a strategy that offers the safest and highest quality products at a value acceptable for all markets” said Mark Marinovich, President and Chief Executive Officer of Pacific Handy Cutter.  “American Capital will be a valuable collaborator as we expand our geographic reach and delve into untapped markets.”

ABOUT AMERICAN CAPITAL

American Capital is the largest U.S. publicly traded alternative asset manager with $12 billion in capital resources under management.  American Capital invests directly and through its asset management business is a global investor in management and employee buyouts, private equity buyouts, and early stage and mature private and public companies.  American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations.  American Capital invests from $5 million to $500 million in North America and €5 million to €400 million in Europe.

As of December 31, 2006, American Capital shareholders have enjoyed a total return of 617% 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 in dividends per share since going public in August 1997 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 or www.EuropeanCapital.com.

*Including reinvestment of Q4 2006 dividend, which will be paid on 1/18/2007.  Q4 dividend reinvestment amount is estimated based on the 12/31/2006 close price less a 5% discount.

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.

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