About Those 14 American Capital Auctions

You may remember American Capital’s ugly quarterly earnings report earlier this month, in which the firm reported a $548 million loss, purchased its European Capital arm and suspended its quarterly dividend. You may also remember my skepticism toward the firm’s stated goal of successfully selling 14 portfolio companies. 

It’s only been two weeks since then, and ACAS understandably hasen’t announced any sales, but today the firm did release details on six company exits and some senior loan syndications from the prior quarter. Pulling off an exit in Q4 of this year is going to be nearly impossible, but that was said of Q3, too, and American Capital managed to swing six deals. The news hasn’t completely renewed my faith that the firm’ll close many exits in the coming month, but it is a (tiny) beacon of hope.

Notably, all of the firm’s exits were secondary sales to other private equity firms. I know American Capital has been big on seller paper to take the contingencies out of sale processes and secure exits. If the firm’s weakened balance sheet leaves little to no paper left to offer sellers, I imagine that’ll make those auctions any tougher to close.

In Q3 the firm earned $520 million from exits, which equaled out to a mere $73 million net gain. The major hit came from Stein World LLC, a furniture importer, from which it lost $32 million, a negative 90% cumulative IRR. Here are American Capital’s exits for the third quarter:

  • Contec Holdings: Sold to Bain Capital Partners affiliate, realized $57 million.
  • SSH Acquisition Inc: Sold To Lake Capital, realized $91 million.
  • PaR Systems Inc: Sold To MML Capital Partners, realized $20 million.
  • Hospitality Mints Inc: Sold to Linsalata Partners, realized $9 million.
  • EAG Limited: Sold to Odyssey Investment Partners and EAG management, realized $21 million.
  • Stein World LLC: Sold to Wingate Partners in a sale initiated by the top of the capital structure (ACAS owned a senior term B loan and senior and junior sub debt). Lost $32 million.
  • Senior loan syndications: Broke even.
  • Other: “Realization of various other portfolio investments.” Lost $22 million.

As Dan noted this morning, American Capital’s shares rose with the market late Friday afternoon. And again today, the BDC, along with all the financials, got a bump on the news of Citi’s bailout, ending the day up 4.5% at $4.63 a share.