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AMERICAN CAPITAL, LTD. Reports Operating Results (10-K)

February 28, 2011 | About:
10qk

10qk

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AMERICAN CAPITAL, LTD. (ACAS) filed Annual Report for the period ended 2010-12-31.

American Capital Ltd. has a market cap of $3.17 billion; its shares were traded at around $9.29 with a P/E ratio of 14.98 and P/S ratio of 5.28. Hedge Fund Gurus that owns ACAS: John Paulson of Paulson & Co., Steven Cohen of SAC Capital Advisors, Jim Simons of Renaissance Technologies LLC, George Soros of Soros Fund Management LLC. Mutual Fund and Other Gurus that owns ACAS: Murray Stahl of Horizon Asset Management, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

We provide investment capital to middle market companies, which we generally consider to be companies with sales between $10 million and $750 million. We primarily invest in senior and mezzanine debt and equity in American Capital One-Stop Buyouts® and Private Equity Buyouts and provide capital directly to early stage and mature private and small public companies. Currently, we will invest up to $300 million in a single middle market transaction in North America. We also invest in Structured Products and alternative asset funds managed by us.

Since our IPO through December 31, 2010, we have invested committed capital of over $5.7 billion in equity securities and over $17.0 billion in debt securities of middle market companies and also have invested $1.7 billion in Structured Products. We have had 316 exits and repayments of over $15.5 billion of our originally

We have a wholly-owned equity investment in European Capital, an investment fund incorporated in Guernsey that invests in and sponsors management and employee buyouts, invests in private equity buyouts and provides capital directly to private and mid-sized public companies primarily in Europe. It primarily invests in senior and mezzanine debt and equity. As of December 31, 2010, European Capitals NAV at fair value was $842 million. As of December 31, 2010, our investment in European Capital consisted of an equity investment representing 100% ownership with a cost basis and fair value of $1,268 million and $608 million, respectively, and a debt investment with a fair value and cost basis of $28 million. As of December 31, 2010, we valued our equity investment in European Capital below its NAV because we applied several discounts in computing the fair value. See Note 2 in this Annual Report on Form 10-K for a further discussion of our valuation of European Capital.

Our alternative asset management business is conducted through our wholly-owned portfolio company, American Capital, LLC. In general, subsidiaries of American Capital, LLC enter into management agreements with each of its managed alternative asset funds. As of December 31, 2010, our investment in American Capital, LLC was $58 million at cost and $129 million at fair value, or 2% of our total investments. The discussion of the operations of American Capital, LLC includes its consolidated subsidiaries. As of December 31, 2010, our assets under management totaled $23 billion, including $14 billion of assets under management in American Capital Agency Corp. (NASDAQ: AGNC), a publicly traded residential mortgage real estate investment trust.

ACE I is a private equity fund established in 2006 with $1 billion of equity commitments from third-party investors. At its inception, ACE I purchased 30% of our equity investments in 96 portfolio companies for an aggregate purchase price of $671 million. Also, ACE I co-invested with American Capital in an amount equal to 30% of equity investments made by us between October 2006 and November 2007 until the $329 million remaining equity commitment was exhausted. In addition, 10%, or $100 million, of the $1 billion of equity commitments are recallable by American Capital, LLC for add-on investments once they have been distributed to the third-party ACE I investors. As of December 31, 2010, ACE I investors had invested $1,029 million, received distributions of $679 million, had $591 million in fair value currently invested and had $71 million of recallable distributions available for add-on investments. American Capital, LLC manages ACE I in exchange for a 2% base management fee on the net cost basis of ACE Is assets (as of December 31, 2010, the cost basis of ACE Is assets were $619 million) and 10% to 30% of the net profits of ACE I, subject to certain hurdles.

ACE II is a private equity fund established in 2007 with $585 million of equity commitments from third-party investors. At its inception, ACE II purchased 17% of our equity investments in 80 portfolio companies for an aggregate purchase price of $488 million. The remaining $97 million commitments will be used to fund add-on investments in the 80 portfolio companies. In addition, 10%, or $58.5 million, of the $585 million of equity commitments are recallable by American Capital, LLC for add-on investments once they have been distributed to the third-party ACE II investors. As of December 31, 2010, ACE II investors had invested $502 million, received distributions of $247 million, had $241 million in fair value currently invested and had $83 million of unfunded equity commitments and had $58.5 million recallable distributions outstanding. American Capital, LLC manages ACE II in exchange for a 2% base management fee on the net cost basis of ACE IIs assets (as of December 31, 2010, the cost basis of ACE IIs assets were $306 million) and 10% to 30% of the net profits of ACE II, subject to certain hurdles.

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