American Capital Reports NOI Before Income Taxes Of $0.23 Per Diluted Share, Net Earnings Of $0.63 Per Diluted Share And NAV Per Share Of $21.40

News provided by

American Capital, Ltd.

Nov 03, 2016, 04:01 ET

BETHESDA, Md., Nov. 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 September 30, 2016 of $52 million, or $0.23 per diluted share, a 5% annualized return on equity.  Consolidated NOI for the quarter ended September 30, 2016 was $34 million, or $0.15 per diluted share.  Consolidated net earnings for the quarter ended September 30, 2016 was $141 million, or $0.63 per diluted share.  As of September 30, 2016, net asset value ("NAV") per share was $21.40, a $0.63 per share increase from the June 30, 2016 NAV per share of $20.77.

Q3 2016 CONSOLIDATED FINANCIAL SUMMARY

  • $21.40 NAV per share outstanding
    • $0.63 per share increase from Q2 2016
    • 13% annualized economic return from Q2 2016
  • $0.23 NOI before income taxes per diluted share, or $52 million
    • (26%), or $(0.08) per diluted share, decline over Q2 2016, or $(19) million
    • 5% annualized return on equity
  • $0.15 NOI after income taxes per diluted share, or $34 million
    • (25%), or $(0.05) per diluted share, decline over Q2 2016, or $(12) million
  • $0.63 net earnings per diluted share, or $141 million
    • 34%, or $0.16 per diluted share increase over Q2 2016, or $35 million
  • $914 million of cash proceeds from realizations
    • $562 million from the sale of American Capital Mortgage Manager, LLC ("ACMM")
    • $176 million from Sponsor Finance and Other Investments
    • $71 million from American Capital One Stop Buyouts®
  • $1,025 million of cash and cash equivalents as of September 30, 2016

American Capital repaid in full and terminated its secured term loan facility and its $350 million senior unsecured five year notes.  American Capital recorded a loss on extinguishment of debt of $(7) million, net of tax.

On July 1, 2016, pursuant to the terms of the Mortgage Manager Purchase Agreement, American Capital Agency Corp. acquired from American Capital Asset Management, LLC ("ACAM") all of the issued and outstanding limited liability company interests in ACMM for a purchase price of $562 million, or $2.45 per diluted share.  During the three months ended September 30, 2016, American Capital recognized a net realized gain of $386 million on the sale of ACMM, which was fully offset by a reversal of unrealized appreciation of $386 million.

PORTFOLIO VALUATION
For the quarter ended September 30, 2016, net unrealized depreciation, before income taxes, on American Capital's consolidated investment portfolio totaled $226 million.  The primary components of the net unrealized depreciation were:

  • $325 million reversal of prior period net unrealized appreciation associated with net realized gains on portfolio investments, of which $386 million was associated with the reversal of unrealized appreciation for the sale of ACMM;
  • $26 million net unrealized depreciation in Sponsor Finance and Other Investments primarily driven by specific company performance; partially offset by
  • $81 million net unrealized appreciation in European Capital investments primarily driven by a company that is in a sales process and specific company performance;
  • $27 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; and
  • $25 million unrealized appreciation in ACAM primarily driven by assets that are currently in a sales process as well as appreciation related to other ACAM managed funds.

PORTFOLIO PERFORMANCE
As of September 30, 2016, the weighted average effective interest rate on consolidated debt investments at cost was 8.3%, 10 basis points lower than the June 30, 2016 rate of 8.4%.  Excluding the impact of debt investments on non-accrual, the weighted average effective interest rate on consolidated debt investments at cost as of September 30, 2016 was 9.6%, the same as the June 30, 2016 rate of 9.6%.

As of September 30, 2016, total loans with a fair value of $181 million were on non-accrual, representing 9.2% of total loans at fair value, compared to $161 million, or 7.4%, of total loans at fair value as of June 30, 2016.  The $20 million increase in the fair value of loans on non-accrual was generally driven by an increase in fair value of existing loans on non-accrual.  Total loans on non-accrual were valued at 65.8% of cost at the end of the quarter, a 10.5% increase from the prior quarter.  This is an estimate of the amount the Company expects to recover on non-accruing loans.  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 $104 million, or 4.9%.

AMERICAN CAPITAL, LTD.

CONSOLIDATED BALANCE SHEETS

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

(in millions, except per share amounts)















Q3

Q2

Q3 2016 Versus
Q2 2016

Q4

Q3 2016 Versus
Q4 2015

2016

2016

$

%

2015

$

%

(unaudited)

(unaudited)









Assets












Investments at fair value (cost of $3,660, $4,201 and $4,905, respectively)

$           3,294

$           4,062

$            (768)

(19%)

$          4,998

$         (1,704)

(34%)

Cash and cash equivalents

1,025

881

144

16%

483

542

112%

Restricted cash and cash equivalents

32

33

(1)

(3%)

46

(14)

(30%)

Interest and dividend receivable

15

37

(22)

(59%)

48

(33)

(69%)

Deferred tax asset, net

256

235

21

9%

198

58

29%

Trade date settlement receivable

—

3

(3)

(100%)

373

(373)

(100%)

Other

78

83

(5)

(6%)

94

(16)

(17%)

Total assets

$           4,700

$           5,334

$            (634)

(12%)

$          6,240

$         (1,540)

(25%)














Liabilities and Shareholders' Equity












Debt, net

$                -

$              784

$            (784)

(100%)

$          1,253

$         (1,253)

(100%)

Other

124

132

(8)

(6%)

165

(41)

(25%)

Total liabilities

124

916

(792)

(86%)

1,418

(1,294)

(91%)














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, 216.0, 215.1 and
   247.3 issued and 213.8, 212.7 and 242.6 outstanding, respectively

2

2

—

—%

2

—

—%

Capital in excess of par value

5,412

5,398

14

—%

5,847

(435)

(7%)

Cumulative translation adjustment, net of tax

(95)

(98)

3

3%

(101)

6

6%

Distributions in excess of net realized earnings

(443)

(640)

197

31%

(879)

436

50%

Net unrealized depreciation of investments

(300)

(244)

(56)

(23%)

(47)

(253)

(538%)

Total shareholders' equity

4,576

4,418

158

4%

4,822

(246)

(5%)

Total liabilities and shareholders' equity

$           4,700

$           5,334

$            (634)

(12%)

$          6,240

$         (1,540)

(25%)














NAV per common share outstanding

$21.40

$20.77

$0.63

3%

$19.88

$1.52

8%

AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2016, June 30, 2016 and September 30, 2015

(in millions, except per share data)

(unaudited)






Q3 2016 Versus
Q2 2016


Q3 2016 Versus
Q3 2015


Q3 2016

Q2 2016

$

%

Q3 2015

$

%

OPERATING REVENUE













Interest and dividend income

$                86

$              121

$              (35)

(29%)

$              165

$              (79)

(48%)

Fee income

8

21

(13)

(62%)

11

(3)

(27%)

Total operating revenue

94

142

(48)

(34%)

176

(82)

(47%)















OPERATING EXPENSES













Interest

5

15

(10)

(67%)

21

(16)

(76%)

Salaries, benefits and stock-based compensation

24

27

(3)

(11%)

31

(7)

(23%)

European Capital management fees

2

2

—

—%

3

(1)

(33%)

General and administrative

11

27

(16)

(59%)

13

(2)

(15%)

Total operating expenses

42

71

(29)

(41%)

68

(26)

(38%)















NET OPERATING INCOME BEFORE INCOME TAXES

52

71

(19)

(27%)

108

(56)

(52%)















Tax provision

(18)

(25)

7

28%

(33)

15

45%

NET OPERATING INCOME

34

46

(12)

(26%)

75

(41)

(55%)















Loss on extinguishment of debt, net of tax

(7)

—

(7)

(100%)

—

(7)

(100%)















Net realized gain (loss)













Portfolio company investments

326

191

135

71%

(68)

394

NM

Foreign currency transactions

—

(4)

4

100%

(10)

10

100%

Derivative agreements and other

—

—

—

—%

(2)

2

100%

Tax (provision) benefit

(156)

4

(160)

NM

23

(179)

NM

Total net realized gain (loss)

170

191

(21)

(11%)

(57)

227

NM















Net unrealized appreciation (depreciation) 













Portfolio company investments

(226)

(161)

(65)

(40%)

(60)

(166)

(277%)

Foreign currency translation

(8)

(11)

3

27%

(2)

(6)

(300%)

Derivative agreements and other

(4)

(6)

2

33%

1

(5)

NM

Tax benefit

182

47

135

287%

6

176

NM

Total net unrealized depreciation

(56)

(131)

75

57%

(55)

(1)

(2%)















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

$              141

$              106

$               35

33%

$              (37)

$             178

NM















NET OPERATING INCOME BEFORE INCOME TAXES PER COMMON SHARE













Basic

$             0.24

$             0.33

$           (0.09)

(27%)

$             0.40

$           (0.16)

(40%)

Diluted

$             0.23

$             0.31

$           (0.08)

(26%)

$             0.40

$           (0.17)

(43%)















NET OPERATING INCOME PER COMMON SHARE













Basic

$             0.16

$             0.21

$           (0.05)

(24%)

$             0.28

$           (0.12)

(43%)

Diluted

$             0.15

$             0.20

$           (0.05)

(25%)

$             0.28

$           (0.13)

(46%)















NET REALIZED GAIN PER COMMON SHARE













Basic

$             0.92

$             1.09

$           (0.17)

(16%)

$             0.07

$            0.85

NM

Diluted

$             0.88

$             1.05

$           (0.17)

(16%)

$             0.07

$            0.81

NM















NET EARNINGS (LOSS) PER COMMON SHARE













Basic

$             0.66

$             0.49

$            0.17

35%

$           (0.14)

$            0.80

NM

Diluted

$             0.63

$             0.47

$            0.16

34%

$           (0.14)

$            0.77

NM















WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING













Basic

214.9

216.6

(1.7)

(1%)

267.7

(52.8)

(20%)

Diluted

225.1

226.7

(1.6)

(1%)

267.7

(42.6)

(16%)















NM = Not meaningful













AMERICAN CAPITAL, LTD.

OTHER FINANCIAL INFORMATION

Three Months Ended September 30, 2016, June 30, 2016 and September 30, 2015

(in millions, except per share data)

(unaudited)



















Q3 2016 Versus
Q2 2016


Q3 2016 Versus
Q3 2015

Q3 2016

Q2 2016

$

%

Q3 2015

$

%

Assets Under Management












American Capital Total Assets at Fair Value

$            4,700

$            5,334

$             (634)

(12%)

$            8,168

$          (3,468)

(42%)

Externally Managed Assets at Fair Value(1)

4,813

70,294

(65,481)

(93%)

71,943

(67,130)

(93%)

Total

$            9,513

$          75,628

$        (66,115)

(87%)

$          80,111

$        (70,598)

(88%)














Third-Party Earning Assets Under Management(2)

$            4,864

$          13,922

$          (9,058)

(65%)

$          15,105

$        (10,241)

(68%)

Total Earning Assets Under Management(3)

$            9,564

$          19,256

$          (9,692)

(50%)

$          23,273

$        (13,709)

(59%)














New Investments












 First Lien Senior Debt

$                  —

$                 —

$                 —

—%

$               303

$             (303)

(100%)

 Second Lien Senior Debt 

4

119

(115)

(97%)

138

(134)

(97%)

 Mezzanine Debt

—

—

—

—%

14

(14)

(100%)

 Preferred Equity

—

1

(1)

(100%)

4

(4)

(100%)

 Common Equity

5

46

(41)

(89%)

85

(80)

(94%)

 Structured Products

—

—

—

—%

147

(147)

(100%)

Total by Security Type

$                   9

$               166

$             (157)

(95%)

$               691

$             (682)

(99%)














Investments in ACAM and Fund Development

$                   5

$                 46

$               (41)

(89%)

$                 82

$               (77)

(94%)

Sponsor Finance and Other Investments

—

97

(97)

(100%)

191

(191)

(100%)

European Capital

—

1

(1)

(100%)

14

(14)

(100%)

Structured Products

—

—

—

—%

147

(147)

(100%)

Senior Floating Rate Loans

—

—

—

—%

223

(223)

(100%)

Add-on Financing for Acquisitions

4

22

(18)

(82%)

—

4

100%

Add-on Financing for Growth and Working Capital

—

—

—

—%

33

(33)

(100%)

Add-on Financing for Distressed Situations

—

—

—

—%

1

(1)

(100%)

Total by Use

$                   9

$               166

$             (157)

(95%)

$               691

$             (682)

(99%)














Realizations












Equity Investments

$               635

$               447

$               188

42%

$               177

$               458

259%

Principal Prepayments

195

223

(28)

(13%)

41

154

376%

Loan Syndications and Sales

41

64

(23)

(36%)

75

(34)

(45%)

Payment of Accrued PIK Notes and Dividends and Accreted OID

22

122

(100)

(82%)

9

13

144%

Scheduled Principal Amortization

21

21

—

—%

192

(171)

(89%)

Total by Source

$               914

$               877

$                 37

4%

$               494

$               420

85%














American Capital Asset Management

$               579

$                 20

$               559

NM

$                 32

$               547

NM

Sponsor Finance and Other Investments

176

222

(46)

(21%)

99

77

78%

American Capital One Stop Buyouts®

71

562

(491)

(87%)

7

64

914%

European Capital

68

23

45

196%

72

(4)

(6%)

Structured Products

17

15

2

13%

22

(5)

(23%)

Senior Floating Rate Loans

3

35

(32)

(91%)

262

(259)

(99%)

Total by Business Line

$               914

$               877

$                 37

4%

$               494

$               420

85%














Appreciation, Depreciation, Gain and Loss












Gross Realized Gain

$               417

$               347

$                 70

20%

$                 46

$               371

807%

Gross Realized Loss

(91)

(156)

65

42%

(114)

23

20%

Portfolio Net Realized Gain (Loss)

326

191

135

71%

(68)

394

NM

Foreign Currency Transactions

—

(4)

4

100%

(10)

10

100%

Derivative Agreements and Other

—

—

—

—%

(2)

2

100%

Tax (Provision) Benefit

(156)

4

(160)

NM

23

(179)

NM

Net Realized Gain (Loss)

170

191

(21)

(11%)

(57)

227

NM














Net Unrealized Depreciation of American Capital One Stop Buyouts®

(8)

(23)

15

65%

(45)

37

82%

Net Unrealized (Depreciation) Appreciation of American Capital Sponsor Finance and Other Investments

(26)

47

(73)

NM

8

(34)

NM

Net Unrealized Appreciation of European Capital Investments

81

4

77

NM

26

55

212%

Net Unrealized Appreciation (Depreciation) of ACAM

25

(28)

53

NM

(55)

80

NM

Net Unrealized Depreciation of Senior Floating Rate Loans

—

—

—

—%

(19)

19

100%

Net Unrealized Appreciation (Depreciation) of Structured Products

27

20

7

35%

(45)

72

NM

Reversal of Prior Period Net Unrealized (Appreciation) Depreciation Upon Realization

(325)

(181)

(144)

(80%)

70

(395)

NM

Net Unrealized Depreciation of Portfolio Company Investments

(226)

(161)

(65)

(40%)

(60)

(166)

(277%)

Foreign Currency Translation - European Capital Investments

(8)

(14)

6

43%

(4)

(4)

(100%)

Foreign Currency Translation - Other

—

3

(3)

(100%)

2

(2)

(100%)

Derivative Agreements and Other

(4)

(6)

2

33%

1

(5)

NM

Tax Benefit

182

47

135

287%

6

176

NM

Net Unrealized Depreciation of Investments

(56)

(131)

75

57%

(55)

(1)

(2%)














Net Gains, Losses, Appreciation and Depreciation

$            114

$              60

$                 54

90%

$          (112)

$            226

NM














Other Financial Data












NAV per Share

$            21.40

$            20.77

$              0.63

3%

$            20.44

$              0.96

5%

Market Capitalization

$            3,615

$            3,367

$               248

7%

$            3,157

$               458

15%

Total Enterprise Value(4)

$            2,590

$            3,270

$             (680)

(21%)

$            5,562

$          (2,972)

(53%)

Asset Coverage Ratio

N/A

658%




300%



Debt to Equity Ratio

0.0x

0.2x




0.5x



Credit Quality












Weighted Average Effective Interest Rate on SFRLs at Period End(5)

—%

—%




4.2%



Weighted Average Effective Interest Rate on Debt Investments, Excluding SFRLs, at Period End(5)

8.3%

8.4%




8.7%



Weighted Average Effective Interest Rate on European Capital's Debt Investments at Period End(5)

1.9%

1.7%




3.7%



Weighted Average Effective Interest Rate on All Debt Investments at Period End(5)

8.3%

8.4%




6.5%



European Capital Loans on Non-Accrual at Cost

$                 83

$                 95

$               (12)

(13%)

$               163

$               (80)

(49%)

Loans on Non-Accrual at Cost, excluding European Capital

$               192

$               196

$                 (4)

(2%)

$               179

$                 13

7%

Total Loans on Non-Accrual at Cost

$               275

$               291

$               (16)

(5%)

$               342

$               (67)

(20%)

European Capital Loans on Non-Accrual at Fair Value

$                 84

$                 32

$                 52

163%

$                 42

$                 42

100%

Loans on Non-Accrual at Fair Value, excluding European Capital

$                 97

$               129

$               (32)

(25%)

$                 85

$                 12

14%

Total Loans on Non-Accrual at Fair Value

$               181

$               161

$                 20

12%

$               127

$                 54

43%

Total Non-Accrual Loans at Cost as a Percentage of Total Loans at Cost

13.2%

12.6%




7.3%



Total Non-Accrual Loans at Fair Value as a Percentage of Total Loans at Fair Value

9.2%

7.4%




2.9%



Total Non-Accruing Loans at Fair Value as a Percentage of Non-Accruing Loans at Cost

65.8%

55.3%




37.1%



Estimated Loss on Non-Accrual Loans(6)

$               104

$               139

$               (35)

(25%)

$               215

$             (111)

(52%)

Estimated Loss as a Percentage of Total Loans at Cost

4.9%

6.0%




4.7%



Past Due Loans at Cost

$                 19

$                 18

$                   1

6%

$                 —

$                 19

100%

Debt to Equity Conversions at Cost

$                 —

$                 —

$                 —

—%

$                  3

$                 (3)

(100%)

Return on Average Equity












LTM Net Operating Income Before Income Taxes Return on Average Shareholders' Equity

6.6%

7.5%




6.3%



LTM Net Operating Income Return on Average Shareholders' Equity

4.6%

5.2%




4.2%



LTM Net Realized Earnings (Loss) Return on Average Shareholders' Equity

7.4%

3.4%




(2.6%)



LTM Net (Loss) Earnings Return on Average Shareholders' Equity

(1.3%)

(4.9%)




1.4%



Current Quarter Annualized Net Operating Income Before Income Taxes Return on Average Shareholders' Equity

4.6%

6.4%




8.0%



Current Quarter Annualized Net Operating Income Return on Average Shareholders' Equity

3.1%

4.1%




5.6%



Current Quarter Annualized Net Realized Gain Return on Average Shareholders' Equity

17.5%

21.2%




1.3%



Current Quarter Annualized Net Earnings (Loss) Return on Average Shareholders' Equity

12.6%

9.5%




(2.7%)































______________________________
N/A = Not applicable
NM = Not meaningful

 

(1)  Includes total assets of American Capital Senior Floating, American Capital Equity I, American Capital Equity II, American Capital Equity III, ACAS CLO 2007-1, ACAS CLO 2012-1, ACAS CLO 2013-1, ACAS CLO 2013-2, ACAS CLO
      2014-1, ACAS CLO 2014-2, ACAS CLO 2015-1, ACAS CLO 2015-2, ACAS CLO Fund I, ACAS CLO IX, European Capital UK SME Debt, European Capital Private Debt and European Capital Private Equity 1, less American Capital's
      investment in the funds. For the three months ended June 30, 2016 and September 30, 2015, also includes total assets of American Capital Agency and American Capital Mortgage.

(2)  Represents third-party earning assets under management from which the associated base management fees are calculated, less American Capital's investment in the funds.

(3)  Represents total assets of American Capital less American Capital's investment in the funds as well as third-party earning assets under management from which the associated base management fees are calculated.

(4)  Enterprise value is calculated as debt at cost plus market capitalization less cash and cash equivalents.

(5)  The weighted average effective interest rate is computed as (a) annual stated interest rate or yield earned plus the net annual amortization of original issue discount and market discount or premium earned on debt investments, divided
       by (b) total debt investments at cost basis.

(6)  Net accumulated depreciation on non-accrual loans plus realized losses on loans during the period presented.

ABOUT AMERICAN CAPITAL
American Capital, Ltd. (NASDAQ: ACAS) is a publicly traded private equity firm and global asset manager.  American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance and structured products.  American Capital manages $10 billion of assets, including assets on its balance sheet and fee earning assets under management by affiliated managers.  Through a wholly owned affiliate, American Capital manages publicly traded American Capital Senior Floating, Ltd. (NASDAQ: ACSF) with $125 million of total net book value.  American Capital and its affiliates operate out of six offices in the U.S. and Europe.  For further information, please refer to www.AmericanCapital.com.

ADDITIONAL INFORMATION
Persons considering an investment in American Capital should consider the investment objectives, risks and charges and expenses of the Company carefully before investing.  Such information and other information about the Company is available in the Company's annual report on Form 10-K, quarterly reports on Form 10-Q and in the prospectuses the Company issues from time to time in connection with its offering of securities.  Such materials are filed with the Securities and Exchange Commission ("SEC") and copies are available on the SEC's website, www.sec.gov.  Prospective investors should read such materials carefully before investing.  Performance data quoted above represents past performance of American Capital.  Past performance does not guarantee future results and the investment return and principal value of an investment in American Capital will likely fluctuate.  Consequently, an investor's shares, when sold, may be worth more or less than their original cost.  Additionally, American Capital's current performance may be lower or higher than the performance data quoted above.

This press release contains forward-looking statements.  Forward-looking statements are based on estimates, projections, beliefs and assumptions of management of the Company at the time of such statements and are not guarantees of future performance.  Forward-looking statements involve risks and uncertainties in predicting future results and conditions.  Actual results could differ materially from those projected in these forward-looking statements due to a variety of factors, including, without limitation, the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional, national or international economic conditions or changes in the conditions of the industries in which American Capital has made investments.  Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and the Company's subsequent periodic filings.  Copies are available on the SEC's website at www.sec.gov.  Forward-looking statements are made as of the date of this press release, and are subject to change without notice.  We disclaim any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.

SOURCE American Capital, Ltd.

Related Links

http://www.americancapital.com

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