Dark Times Part III: Why Allied and ACAS Won’t Go Private

We can guess why Blackstone won’t go private (pride), but it can’t be as simple for American Capital and Allied Capital Corp., both which are struggling to negotiate for waivers on their credit facilities, as they have violated the covenants.

As reported earlier, questions about a change in strategy came up on each of the firms’ earnings calls today, and the CEO of each responded with a “No, we will remain a BDC.”

I got a little more color on why neither of those firms would even get the chance to take themselves public. Troy Ward, an analyst at Stifel Nicolaus, explained that because of their covenant violations, the firms can never “go private” in the traditional sense. Since they are in negotiations with lenders now, there are two possible outcomes:

If they can manage to agree on a plan to get debt paid down while staying in compliance with new financial covenants, which implies some level of improvement in the credit markets, then the stock won’t go to zero.

If they can’t work out a solution to the covenant violation, the unsecured lenders will sue in court and get a judgement against the firms for access to the assets. If it ever got to that point, the firms would file for bankruptcy to stop collections from the unsecured lenders and try to reorganize under bankruptcy protection.

So, I guess if you want to look at Chapter 11 as a potential for a “take-private,” that’s your scenario.

Dark Times Part Two: Not Everyone is Drowning
Dark Times For Public PE, But Don’t Expect Any Take-Privates or Dividends