BETHESDA, Md., Aug. 3, 2016 /PRNewswire/ -- American Capital, Ltd. ('American Capital' or the 'Company') (NASDAQ: ACAS) announced consolidated net operating income ('NOI') before income taxes for the quarter ended June 30, 2016 of $71 million, or $0.31 per diluted share, a 6% annualized return on equity. Consolidated NOI for the quarter ended June 30, 2016 was $46 million, or $0.20 per diluted share. Consolidated net earnings for the quarter ended June 30, 2016 was $106 million, or $0.47 per diluted share. As of June 30, 2016, net asset value ('NAV') per share was $20.77, a $0.63 per share increase from the March 31, 2016 NAV per share of $20.14.

On May 23, 2016, American Capital entered into a Merger Agreement (the 'Merger Agreement') with Ares Capital Corporation ('Ares Capital') and certain of its affiliates under which Ares Capital will acquire American Capital. In connection with the Merger Agreement, American Capital incurred non-recurring costs of approximately $13 million in the quarter ended June 30, 2016. American Capital also agreed under the Merger Agreement to certain restrictions on its operations going forward, including restrictions on new investment activity, asset dispositions, personnel actions and certain other matters. Also on May 23, 2016, American Capital agreed to the sale of its wholly-owned affiliate American Capital Mortgage Management, LLC ('ACMM') to American Capital Agency Corp. ('AGNC') for $562 million. That transaction closed on July 1, 2016.

Q2 2016 CONSOLIDATED FINANCIAL SUMMARY

  • $20.77 NAV per share outstanding
    • $0.63 per share increase from Q1 2016
    • 13% annualized economic return from Q1 2016
  • $0.31 NOI before income taxes per diluted share, or $71 million
    • (23%), or $(0.09) per diluted share, decline over Q1 2016, or $(23) million
    • 6% annualized return on equity
    • 8% annualized return on equity, excluding non-recurring costs
      • $13 million of transaction costs associated with the strategic review process
  • $0.20 NOI after income taxes per diluted share, or $46 million
    • (35%), or $(0.11) per diluted share, decline over Q1 2016, or $(28) million
  • $0.47 net earnings per diluted share, or $106 million
    • $0.81 per diluted share improvement over Q1 2016, or $186 million
  • $877 million of cash proceeds from realizations
    • $562 million from American Capital One Stop Buyouts
    • $222 million from Sponsor Finance and Other Investments
  • $166 million of new committed investments
    • $119 million in Sponsor Finance Investments
    • $46 million in American Capital Asset Management, LLC ('ACAM')
  • 11.5 million shares of American Capital common stock repurchased for $180 million
    • 5.2% of shares outstanding as of March 31, 2016
    • $15.74 average price per share
    • Share repurchases terminated in May 2016
  • On July 1, 2016, American Capital repaid in full and terminated its secured term loan facility. Additionally, American Capital provided notice of its election to redeem its $350 million senior unsecured five-year notes ('Private Notes') on September 15, 2016, and irrevocably deposited with the trustee the aggregate redemption price of 101.625% of the principal amount plus accrued and unpaid interest required to redeem all of the Private Notes.

PORTFOLIO VALUATION

For the quarter ended June 30, 2016, net unrealized depreciation, before income taxes, on American Capital's consolidated investment portfolio totaled $161 million. The primary components of the net unrealized depreciation were:

  • $181 million reversal of prior period unrealized appreciation associated with net realized gains on portfolio investments;
  • $28 million unrealized depreciation in ACAM primarily due to the sale of ACMM on July 1, 2016;
  • $23 million net unrealized depreciation in American Capital One Stop Buyouts® primarily driven by companies that were in a sales process; partially offset by
  • $47 million net unrealized appreciation in Sponsor Finance and Other Investments primarily driven by portfolio companies that are currently in a sales process as well as narrowing investment spreads; and
  • $20 million net unrealized appreciation in Structured Products investments primarily due to higher dealer marks and increased secondary trading as well as an increase in loan prices.

PORTFOLIO PERFORMANCE

As of June 30, 2016, the weighted average effective interest rate on consolidated debt investments at cost was 8.4%, 20 basis points lower than the March 31, 2016 rate of 8.6%. Excluding the impact of debt investments on non-accrual, the weighted average effective interest rate on consolidated debt investments at cost as of June 30, 2016 was 9.6%, 10 basis points lower than the March 31, 2016 rate of 9.7%. The weighted average effective interest rate on European Capital's debt investments at cost as of June 30, 2016 was 1.7%, the same as the March 31, 2016 rate of 1.7%. Excluding the impact of debt investments on non-accrual, the weighted average effective interest rate on European Capital's debt investments at cost as of June 30, 2016 was 8.2%, 70 basis points higher than the March 31, 2016 rate of 7.5%.

As of June 30, 2016, excluding European Capital, loans with a fair value of $129 million were on non-accrual, representing 6.1% of total loans at fair value, compared to $115 million, or 5.1%, of total loans at fair value as of March 31, 2016. The $14 million increase in the fair value of loans on non-accrual was generally driven by the addition of loans placed on non-accrual status offset by exits of loans on non-accrual status. Excluding European Capital, loans on non-accrual were valued at 65.8% of cost at the end of the quarter, a 3.6% increase from the prior quarter. This is an estimate of the amount the Company expects to recover on non-accruing loans. Excluding European Capital, the estimated loss on total loans at cost, defined as net accumulated depreciation on non-accrual loans plus realized losses on loans during the period, was $76 million, or 3.4%.

As of June 30, 2016, European Capital loans with a fair value of $32 million were on non-accrual, representing 62.7% of European Capital loans at fair value, compared to $22 million, or 48.9%, of European Capital loans at fair value as of March 31, 2016. The $10 million increase in the fair value of European Capital loans on non-accrual was generally driven by an increase in fair value of existing loans on non-accrual. Total European Capital loans on non-accrual were valued at 33.7% of cost at the end of the quarter, an 11.0% increase from the prior quarter. The estimated loss on total European Capital loans at cost was $63 million, or 52.5%.

SHARE REPURCHASE PROGRAM

American Capital's previously announced share repurchase program, which began in the third quarter of 2015, contemplated the purchase of $600 million to $1 billion of shares of the Company's common stock. Shortly before execution of the Merger Agreement, the Board of Directors suspended the share repurchase program, and under the Merger Agreement, the Company agreed to make no further repurchases.

Prior to suspending repurchases, American Capital during the second quarter made open market purchases of 11.5 million shares of its common stock at an average price of $15.74 per share for an aggregate price of $180 million. These shares constituted 5.2% of the Company's outstanding shares as of March 31, 2016. The Company purchased a total of $910 million of its common stock under this share repurchase program. Since August 2011, American Capital has made open market purchases of 171.2 million shares, or $2.2 billion, of American Capital common stock at an average price of $12.83 per share. This represents 50% of shares outstanding immediately prior to August 2011.

AMERICAN CAPITAL, LTD.

CONSOLIDATED BALANCE SHEETS

As of June 30, 2016, March 31, 2016 and December 31, 2015

(in millions, except per share amounts)

Q2

Q1

Q2 2016 Versus
Q1 2016

Q4

Q2 2016 Versus
Q4 2015

2016

2016

$

%

2015

$

%

(unaudited)

(unaudited)

Assets

Investments at fair value (cost of $4,201, $4,725 and $4,905, respectively)

$ 4,062

$ 4,737

$ (675)

(14%)

$ 4,998

$ (936)

(19%)

Cash and cash equivalents

881

364

517

142%

483

398

82%

Restricted cash and cash equivalents

33

32

1

3%

46

(13)

(28%)

Interest and dividend receivable

37

54

(17)

(31%)

48

(11)

(23%)

Deferred tax asset, net

235

212

23

11%

198

37

19%

Trade date settlement receivable

3

32

(29)

(91%)

373

(370)

(99%)

Other

83

84

(1)

(1%)

94

(11)

(12%)

Total assets

$ 5,334

$ 5,515

$ (181)

(3%)

$ 6,240

$ (906)

(15%)

Liabilities and Shareholders' Equity

Debt, net

$ 784

$ 887

$ (103)

(12%)

$ 1,253

$ (469)

(37%)

Other

132

148

(16)

(11%)

165

(33)

(20%)

Total liabilities

916

1,035

(119)

(11%)

1,418

(502)

(35%)

Shareholders' equity

Undesignated preferred stock, $0.01 par value, 5.0 shares authorized, 0
issued and outstanding

-

-

-

-%

-

-

-%

Common stock, $0.01 par value, 1,000.0 shares authorized, 215.1, 227.6 and
247.3 issued and 212.7, 222.4 and 242.6 outstanding, respectively

2

2

-

-%

2

-

-%

Capital in excess of par value

5,398

5,561

(163)

(3%)

5,847

(449)

(8%)

Cumulative translation adjustment, net of tax

(98)

(93)

(5)

(5%)

(101)

3

3%

Distributions in excess of net realized earnings

(640)

(877)

237

27%

(879)

239

27%

Net unrealized depreciation of investments

(244)

(113)

(131)

(116%)

(47)

(197)

(419%)

Total shareholders' equity

4,418

4,480

(62)

(1%)

4,822

(404)

(8%)

Total liabilities and shareholders' equity

$ 5,334

$ 5,515

$ (181)

(3%)

$ 6,240

$ (906)

(15%)

NAV per common share outstanding

$ 20.77

$ 20.14

$ 0.63

3%

$ 19.88

$ 0.89

4%

AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended June 30, 2016, March 31, 2016 and June 30, 2015

(in millions, except per share data)

(unaudited)

Q2 2016 Versus
Q1 2016

Q2 2016 Versus
Q2 2015

Q2 2016

Q1 2016

$

%

Q2 2015

$

%

OPERATING REVENUE

Interest and dividend income

$ 121

$ 149

$ (28)

(19%)

$ 151

$ (30)

(20%)

Fee income

21

13

8

62%

17

4

24%

Total operating revenue

142

162

(20)

(12%)

168

(26)

(15%)

OPERATING EXPENSES

Interest

15

15

-

-%

20

(5)

(25%)

Salaries, benefits and stock-based compensation

27

34

(7)

(21%)

32

(5)

(16%)

European Capital management fees

2

2

-

-%

4

(2)

(50%)

General and administrative

27

17

10

59%

15

12

80%

Total operating expenses

71

68

3

4%

71

-

-%

NET OPERATING INCOME BEFORE INCOME TAXES

71

94

(23)

(24%)

97

(26)

(27%)

Tax provision

(25)

(20)

(5)

(25%)

(30)

5

17%

NET OPERATING INCOME

46

74

(28)

(38%)

67

(21)

(31%)

Net realized gain (loss)

Portfolio company investments

191

(83)

274

NM

(284)

475

NM

Foreign currency transactions

(4)

-

(4)

(100%)

3

(7)

NM

Derivative agreements and other

-

(17)

17

100%

46

(46)

(100%)

Tax benefit

4

12

(8)

(67%)

12

(8)

(67%)

Total net realized gain (loss)

191

(88)

279

NM

(223)

414

NM

Net unrealized appreciation (depreciation)

Portfolio company investments

(161)

(76)

(85)

(112%)

140

(301)

NM

Foreign currency translation

(11)

(8)

(3)

(38%)

13

(24)

NM

Derivative agreements and other

(6)

13

(19)

NM

65

(71)

NM

Tax benefit

47

5

42

840%

-

47

100%

Total net unrealized (depreciation) appreciation

(131)

(66)

(65)

(98%)

218

(349)

NM

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ('NET EARNINGS (LOSS)')

$ 106

$ (80)

$ 186

NM

$ 62

$ 44

71%

NET OPERATING INCOME BEFORE INCOME TAXES PER COMMON SHARE

Basic

$ 0.33

$ 0.40

$ (0.07)

(18%)

$ 0.36

$ (0.03)

(8%)

Diluted

$ 0.31

$ 0.40

$ (0.09)

(23%)

$ 0.34

$ (0.03)

(9%)

NET OPERATING INCOME PER COMMON SHARE

Basic

$ 0.21

$ 0.31

$ (0.10)

(32%)

$ 0.25

$ (0.04)

(16%)

Diluted

$ 0.20

$ 0.31

$ (0.11)

(35%)

$ 0.24

$ (0.04)

(17%)

NET REALIZED GAIN (LOSS) PER COMMON SHARE

Basic

$ 1.09

$ (0.06)

$ 1.15

NM

$ (0.57)

$ 1.66

NM

Diluted

$ 1.05

$ (0.06)

$ 1.11

NM

$ (0.55)

$ 1.60

NM

NET EARNINGS (LOSS) PER COMMON SHARE

Basic

$ 0.49

$ (0.34)

$ 0.83

NM

$ 0.23

$ 0.26

113%

Diluted

$ 0.47

$ (0.34)

$ 0.81

NM

$ 0.22

$ 0.25

114%

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING

Basic

216.6

235.0

(18.4)

(8%)

272.4

(55.8)

(20%)

Diluted

226.7

235.0

(8.3)

(4%)

283.4

(56.7)

(20%)

______________________________
NM = Not meaningful

American Capital Ltd. published this content on 03 August 2016 and is solely responsible for the information contained herein.
Distributed by Public, unedited and unaltered, on 03 August 2016 10:20:09 UTC.

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