Yet with all that bad news, the stock trades at $5.66, up more than 100% year to date. How is this possible?
The true test of a company is how management handles itself in truly bad times -- and American Capital's management has made all the right moves. It exited investments in order to raise cash, cut overhead, and maintained a diversified portfolio.
Noted hedge fund manager John Paulson bought stock now equal to about a 13% stake, providing a big vote of confidence. Now, with still more than $900 million of cash on hand, the company has started to regain its footing, and announced plans to make equity investments in 2010.
Middle-market businesses need capital badly, and since these entities have often exhausted typical bank credit facilities, American Capital can pick and choose among the best investments. That's why it's taking equity positions; why not get a piece of a great company, instead of just making a loan?
However, investors looking for companies on more solid footing may want to check out Apollo Investment Corp.
Speculative investors may find a distressed play like American Capital will return more over the long haul since it has longer to travel. John Paulson seems to think so, and he's not even holding a rock.
Fool contributor Rick Steier does not own shares in any company mentioned. The Fool's disclosure policy always gets a perfect score.