Shares of investment manager American Capital Strategies fell by a third Wednesday after the company reported a first-quarter loss from a significant drop in the value of investments.
The Bethesda, Md.-based company's loss was $547 million, or $2.65 per share, compared with a loss of $813 million, or $4.16 a share, a year earlier.
The company said for the quarter ended March 31 that net unrealized depreciation of portfolio investments was $525 million.
Net operating income was $64 million, or 31 cents a share, compared with $151 million, or 77 cents a share, a year earlier.
Revenue fell 33 percent to $195 million from $292 million a year earlier.
Analysts polled by Thomson Reuters expected a profit of 37 cents a share on revenue of $185 million.
Shares fell 33 percent, or $1.58, to $3.20.
The company continues to struggle with debt issues. It said it remains in default on $2.3 billion of unsecured credit and is working with lenders to reach resolution. The company is paying higher interest rates as a result of the defaults and credit downgrades and will see increased expenses as a result.
Asset value declines have also caused the company to continue to be below the 200 percent asset coverage ratio required by federal law, which restricts the company from issuing any new debt except to refinance existing debt. The company believes that it has sufficient liquidity to meet its currently scheduled debt amortization and the investment needs within its portfolio.
It reduced outstanding debt by $51 million during the quarter.
The company said it intends to declare by June 15, and pay by September 30, $300 million of dividends to eliminate all of its 2008 remaining rollover taxable income in order to avoid any income tax liability.
"Although we are still going through a severe recession, the recent growth in investment spreads slowed significantly during the first quarter of 2009, compared to the prior quarter, which is a positive indicator that we are nearing the bottom of this cycle," said Chief Executive Malon Wilkus. "We experienced approximately $150 million of the depreciation due to widening investment spreads and approximately $450 million due to a decline in portfolio performance and credit impairment."
He said it's too early to say the recession has bottomed. The company is cautiously optimistic that the rate of economic decline has significantly slowed.
At the June 11 annual meeting, stockholders will be asked to approve an amendment allowing up to four reverse stock splits over the next year.
The quarterly results were disappointing, said BMO Capital Markets Analyst David J. Chiaverini, who maintained his "Underperform" rating.
He said company's book value declined 20 percent in the quarter, debt negotiations are ongoing and costing the company in legal fees and its credit quality weakened.
Fox-Pitt Kelton Matthew Howlett said the extent of the company's loss was a surprise.
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