4-Star Stocks Poised to Pop: American Capital

• Report this Comment On December 30, 2009, at 12:59 PM, ir4getful wrote:

  The risk-reward ratio makes this a great speculative buy. I'm betting (yes, its a gamble pure and simple) they will get their debt structure realigned and we will see a nice pop in the stock. Then the question will be - do I hold for the longer term or take the $$ and run?

• Report this Comment On December 30, 2009, at 1:43 PM, ferdiefor wrote:

  ALD did not benefit from its debt accord. ACAS is dead money. ACAS will have to sell off its best assets to paydown debt aggressively and will have little left for investors to regain a fraction of dividends in the future.

• Report this Comment On December 30, 2009, at 8:20 PM, SOX302 wrote:

  Prior comments:

  "If [American Capital] can dodge the pile of short-term debt due"

  and

  "its covenant breach capital lenders"

  are not very clear, and seems to imply finding a way to shortchange toxic debt, not improving a good business by enhancing efficiencies and cutting costs.

  This is the group on the playground your parents were pointing at when they told you to stay away.

• Report this Comment On December 31, 2009, at 3:41 PM, muchohucho wrote:

  SOX302 exactly. I suggest you go read their profile on Yahoo Finance, after you've waded through that mess trying to figure out what this company does, remember, they not only have to keep track of what they do, but they also have to keep track of the books too, which they are criminally failing at. This was another one of those "next BRKs". NOT. This is a very troubled financial company and (short) speculation now is really all any investor can hope for. I've lost thousands on this company, and its the same corrupt incompetent company now, as it was earlier in decade when growing share price was only reflecitve if its Enronic bookkeeping and sensationalist self-absorbed reporting.

• Report this Comment On January 01, 2010, at 1:15 PM, NotMyBusinessBut wrote:

  OK .. there's the scoop on ACAS.

  First just some FACTS (no opinion in this first part):

  1) ACAS is a BDC, which is means a few key things:

  -a) like a REIT must distribute 90% of its NOI's

  -b) cannot sell shares below NAV

  -c) cannot take new debt when assets/debt < 2

  -d) because the PPS is < NAV and A/D < 2, ACAS's ability to raise capital to paydown debt has been highly restricted over the past 12 months.

  2) ACAS's unsecured debt holders had convenants which required assets/debt > 2

  -a) they breached this technical covenant which increased their interest costs

  -b) they have never missed a scheduled payment, even at these higher levels

  3) ACAS has NAV of ~$7.50/shr! and has another ~$2.30/shr in it's holding ECAS that can be written up once ECAS's debt is refinanced. ECAS has an NAV of $800M, but is currently on ACAS's books at ~$130M due to ECAS's techinical default status with its lenders. The ECAS debt refinance is a requisite of closing the comprehensive debt refinance.

  4) ACAS has a debt refinance plan which was written in cooperation with creditor's representatives.

  http://ir.americancapital.com/phoenix.zhtml?c=109982&p=i...

  This plan (which can be seen in the 8k from Nov 4th) provides for a refinancing of ACAS's unsecured debts to secured debt with an amortization schedule over 4 years.. which a sliding scale of interest rates from 11.5% to 7.5% as the debt is payed down.

  5) ACAS entered into a lock-up agreement with 95% of its creditors involved in the "revolver" credit facility (the largest unsecured debt) in support of this refinance agreement. The deal will either be agreed to by agreement of 100% of the creditors or be passed thru in a pre-packed CH11 proceeding. The lock-up agreement has milestone dates of Jan 15th (extendable to Jan 30th) for a vote on both the plan or to move to pre-pack CH11 and date of March 30th if the pre-pack CH11 route is taken.

  6) (opinion) ACAS's assets so far exceed its debts it is VERY, VERY unlikely that the current equity structure will be touched (current shareholders are secure) if the pre-pack route is taken.

  7) (back to facts) ACAS was given the authority to sell up to 20% of the outstanding share count in new shares below NAV (remember 1b above) for 1 year from last Feb 2009. In this past year, they never used the authority because they didn't think the PPS was high enough compared to the NAV. With all these debt resolution possibilities coming in the next 3 months, ACAS is asking for a 1 year extension for this authority (very important IMO) to be approved again by shareholders this coming Feb. 2010.

  My Opinion and Analysis:

  If you assume that they cannot corral 100% of the creditors to approve the "refi", then you have to look at the prepack CH11 process. With 95% of the revolver creditors already in the lock-up approving the 'plan', it would only take 1/2 of the private note holders to agree to the pre-pack CH11 to constitute 2/3'rds of the creditors (the amount required for approval since all creditor classes get equal treatment and all creditor get fully paid at increased interest rates). Earlier in the year, ACAS came to a forebarance agreement with the private note holders regarding ACAS's technical default status with them .. so ACAS is already in a position with this creditor group as well. If they can get 100% of the private note holders as well, they will have over 76% of the creditors in support of the plan.

  Given the high asset coverage and the payment history, there is very little risk to current shareholders. The plan agreed to does not include any new equity offerings. As a matter of fact, any new equity raised in the first 24 months after the plan is agreed to, is ACAS's do to with as they please .. i.e. there is NO requirement of any % of new equity to be used to pay-off the creditors. A combination of this element of the plan and the asset coverage means to me that the shareholders are safe.

  So, ACAS is selling at ~$2.50/shr with an NAV of ~$7.50/shr and about $2.25/shr in ECAS depreciation due to its default status.

  There is a VERY HIGH payback opportunity with ACAS at these levels .. maybe a 2x-3x in 2 years with a commensurate risk level for that type of return.

  NMB

• Report this Comment On January 15, 2010, at 8:00 PM, Fool wrote:

  At least 5 with 2 months and at least 7 by the end of the year! They will creap back to 15 and that is when would start to worry!

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