Interim Management Statement
European Capital Limited Reports Net Operating Income of euro 19 Million and Net Earnings of euro 58 Million
ST. PETER PORT, Guernsey, Dec. 1, 2010 /PRNewswire-FirstCall/ -- European Capital Limited ("European Capital") today issues an Interim Management Statement announcing net operating income ("NOI") for the nine months ended 30 September 2010 of euro 19 million. Net earnings less appreciation (depreciation) ("Net Realised Loss") for the nine months were euro 2 million and net earnings were euro 58 million.
Q3 2010 YTD FINANCIAL SUMMARY
- euro 19 million NOI
- euro 68 million net unrealised appreciation on investments
- euro (43) million net realised loss on investments
- euro 58 million net earnings
- euro 354 million increase over the same period of 2009
- euro 281 million of cash proceeds from realisations
- euro 306 million reduction in debt
- Including euro 131 million of secured debt due in 2011
- euro 582 million net asset value ("NAV")
- euro 55 million, or 10% increase over Q4 2009
"Our NAV grew by euro 55 million since December 2009," said Ira Wagner. "That is a total return on equity of 10% since the low point of the financial crisis in Q4 2009. We believe that the economy is continuing to recover, which should allow our portfolio to improve and for European Capital to experience continued growth in our book value."
Net Operating Income ("NOI")
NOI for the nine month period to September 2010 was euro 19 million, compared to euro 30 million for the same period of 2009. The fall in NOI is driven by a combination of lower operating income from a reduced investment portfolio, lower rate indices and provisions made against accrued income for certain investment assets, in addition to higher spreads on the secured multicurrency revolving credit facility.
Net Realised Loss
Net Realised Loss was a loss of euro 2 million for the nine month period to September 2010, compared to a loss of euro 35 million for the same period of 2009. The euro 2 million loss was primarily driven by a loss on the write off of fully depreciated assets of euro 58 million.
Net Earnings
Net Earnings in the nine month period to September 2010 were a gain of euro 58 million, compared to a loss of euro 296 million in the same period of 2009. This reflects appreciations in portfolio valuations driven by improved portfolio performance and overall market performance.
Net Asset Value ("NAV")
European Capital's NAV as of 30 September 2010 was euro 583 million, an increase of euro 55 million or 10% higher than the 31 December 2009 NAV of euro 528 million.
PORTFOLIO LIQUIDITY AND PERFORMANCE
Since inception, European Capital has invested euro 3.3 billion in 91 portfolio companies. European Capital has realised euro 1.7 billion from the portfolio since inception, including senior debt syndications. It has exited fully 32 portfolio companies, realising an aggregate of euro 998 million comprising:
- euro 666 million of principal repayments;
- euro 124 million from loan syndications and sales;
- euro 98 million of collections of PIK notes and dividends, and;
- euro 110 million from sales of equity.
These exits achieved an aggregate IRR of 9.9%. Exits from all equity investments have achieved a 28.8% IRR. The aggregate IRR for all investments is 0.4%.(1)
European Capital's portfolio as of 30 September 2010 at fair market value was euro 1,033 million, with an average size of euro 17 million per portfolio company. European Capital's largest investment represents 9.6% of total investment assets. The ten largest investments represent 50.8% of total investment assets. Non-accrual loans represent 5.5% of total loans at fair market value.
During the nine month period to September 2010, European Capital:
- Realised proceeds of euro 281 million, compared with euro 9 million in the same period of 2009. The proceeds were at an average of 2.1% above the prior quarter's valuations of the realised investments. The realisations proceeds included:
- euro 131 million and a euro 14 million equity gain from the sale of Spotless Group, resulting in a 21% annual equity return and a 15% annual mezzanine rate of return from the sale;
- euro 74 million and a euro 10 million equity gain from the sale of GO Voyage, resulting in a 19% annual equity return and a 16% annual mezzanine rate of return from the sale;
- euro 48 million repayment of a debt investment in Inspicio resulting in a 13% annual mezzanine rate of return.
- Invested euro 1.4 million in existing portfolio companies, compared with euro 0.5 million in the same period of 2009.
Since the low point of the financial crisis in Q4 2009, European Capital has increased its book value by euro 55 million or a 10% total return. In the same period there have been strong realisations allowing for debt to be paid down by euro 306 million, a significant delevering of the balance sheet.
(1) Our investments are carried at fair value in accordance with the 1940 Act and SFAS No. 157, Fair Value Measurements ("SFAS No. 157"), which is codified in FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820").
CAPITAL RESOURCES
At 30 September 2010, European Capital had debt outstanding of euro 473 million with asset coverage of 223%, and for the third quarter a weighted average interest rate of 7.5%.
In December 2009, European Capital amended its secured multicurrency revolving credit facility into a single amortising term facility, removed the ability to drawdown additional funds and amended certain representations, covenants and events of default. There are no remaining amortization requirements left under the facility, which is due in full on 31 December 2011. At 30 September 2010, the amount outstanding under this loan was euro 220 million (including accrued interest and programme fee).
Interest on the borrowings under this facility is paid quarterly and is charged at an appropriate inter-bank rate depending on the currency in which the borrowing is made and a margin of 2.50%. In addition, there is a programme fee that accrues quarterly and is paid on the date on which all advances outstanding will be repaid in full. The programme fee is based on the level of advances outstanding at the start of each quarter. The programme fee is accruing at 5%, the lowest level in the pricing grid.
In March 2010, European Capital paid down all outstanding borrowings under its unsecured revolving credit facility with The Royal Bank of Scotland plc and Bank of Montreal, London Branch and the facility was terminated.
As at 30 September 2010, European Capital had euro 135 million (including accrued interest) of investment grade secured senior notes outstanding. These floating rate notes are collateralised by certain assets of European Capital which had a fair value as at 30 September 2010 of euro 211 million. The secured notes currently have a floating rate of the bank's cost of funds plus a margin of 1.05%; the margin increases to 1.50% in February 2011 and 2.00% in February 2013. The secured notes are due in full in July 2018.
European Capital has issued three senior unsecured notes in private placement offerings. The aggregate amount outstanding under these notes is euro 109 million (including accrued interest). The Series 2006-1 notes for euro 52 million have a fixed interest rate of 6.80% until January 2012 and thereafter a floating rate of EURIBOR plus 2.75% until the maturity of the notes in January 2022. The Series 2007-I notes of $37.5 million have a fixed interest rate of 8.02% until July 2012 and thereafter a floating rate of LIBOR plus 2.75% until the maturity of the notes in July 2022. The Series 2007-II notes of $37.5 million have a fixed interest rate of 7.62% until July 2012 and thereafter a floating rate of LIBOR plus 2.75% until the maturity of the notes in July 2022.
European Capital has an unsecured revolving credit facility with American Capital, with a total commitment of $53 million. At 30 September 2010, the amount outstanding under this facility was euro 9 million (including accrued interest). Interest on the borrowings under this facility is charged at a floating rate of US LIBOR plus a margin of 7.00% payable when the facility is repaid. This facility matures in June 2012.
European Capital will use proceeds from liquidity events in part to cover expenses and service debt, to invest in its existing portfolio companies for organic growth and add-on acquisitions, as well as to make new mezzanine investments and One-Stop Buyouts™.
"Our balance sheet continues to strengthen," said Juan Carlos Morales Cortes. "Our asset coverage ratio improved to 223% and debt has reduced by euro 306 million, including euro 131 million of secured debt due in 2011. This has caused the programme fee to drop to the lowest rate available under the facility. We continue to experience strong liquidity in the portfolio at attractive valuations, which we believe will allow us to invest in existing portfolio companies for organic growth and add-on acquisitions, as well as to make new mezzanine and second lien investments and One-Stop Buyouts."
EUROPEAN CAPITAL LIMITED
CONSOLIDATED BALANCE SHEETS
As of 30 September 2010, 30 June 2010 and 31 December 2009
(in thousands)
30 September 2010
Versus 30 June 2010
30 September 30 June -------------------
2010 2010 euro %
---- ---- ---- ---
(unaudited) (unaudited)
Assets
Investments at
fair value (Cost basis
of euro 1,703,605,
euro 1,884,699 and
euro 2,007,831,
respectively) 1,032,932 1,179,462 (146,530) -12%
Cash and cash
equivalents 2,333 1,766 567 32%
Restricted cash 13,173 31,031 (17,858) -58%
Interest receivable 4,096 4,928 (832) -17%
Other 9,117 9,730 (613) -6%
--------- --------- -------- ----
Total assets 1,061,651 1,226,917 (165,266) -13%
========= ========= ======== ====
Liabilities
and Shareholders'
Equity
Debt (maturing
within one year euro
2,991, euro 39,972 and
euro 163,008,
respectively) 472,581 631,986 (159,405) -25%
Due to European
Capital Financial
Services (Guernsey)
Limited 1,366 2,385 (1,019) -43%
Other 5,157 8,615 (3,458) -40%
------- ------- -------- ----
Total liabilities 479,104 642,986 (163,882) -25%
------- ------- -------- ----
Shareholders' equity:
Share Capital 224,475 224,475 - 0%
Share Premium 24 24 - 0%
Undistributed
net realised
earnings 1,045,221 1,085,002 (39,781) -4%
Net unrealised
foreign currency
depreciation (101,190) (68,770) (32,420) -47%
Net unrealised
depreciation of
investments (585,983) (656,800) 70,817 11%
-------- -------- ------ ---
Total shareholders'
equity 582,547 583,931 (1,384) 0%
------- ------- ------ ----
Total liabilities
and shareholders'
equity 1,061,651 1,226,917 (165,266) -13%
========= ========= ======== ====
30 September 2010
Versus 31 December 2009
31 December -----------------------
2009 euro %
---- ---- ---
Assets
Investments at fair value (Cost
basis of euro 1,703,605, euro
1,884,699 and euro 2,007,831,
respectively) 1,222,525 (189,593) -16%
Cash and cash equivalents 36,097 (33,764) -94%
Restricted cash 36,519 (23,346) -64%
Interest receivable 5,752 (1,656) -29%
Other 12,943 (3,826) -30%
------ ------ ----
Total assets 1,313,836 (252,185) -19%
========= ======== ====
Liabilities and Shareholders'
Equity
Debt (maturing within one year
euro 2,991, euro 39,972 and
euro 163,008, respectively) 778,368 (305,787) -39%
Due to European Capital
Financial Services (Guernsey)
Limited 1,663 (297) -18%
Other 5,900 (743) -13%
----- ---- ----
Total liabilities 785,931 (306,827) -39%
------- -------- ----
Shareholders' equity:
Share Capital 224,475 - 0%
Share Premium - 24 100%
Undistributed net realised
earnings 1,050,521 (5,300) -1%
Net unrealised foreign currency
depreciation (93,182) (8,008) -9%
Net unrealised depreciation of
investments (653,909) 67,926 10%
-------- ------ ----
Total shareholders' equity 527,905 54,642 10%
------- ------ ----
Total liabilities and
shareholders' equity 1,313,836 (252,185) -19%
========= ======== ====
EUROPEAN CAPITAL LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended 30 September 2010 and 2009
(in thousands)
(unaudited)
Three Months Ended
Three Months Ended 30 September
30 September 2010 Versus 2009
------------ ----------------
2010 2009 euro %
---- ---- ---- ---
OPERATING INCOME:
Interest and
dividend income 20,674 35,047 (14,373) -41%
Fee and other
income 705 390 315 81%
------ ------ ------- ----
Total operating
income 21,379 35,437 (14,058) -40%
------ ------ ------- ----
OPERATING EXPENSES:
Interest 10,024 11,888 (1,864) -16%
Management fee and
reimbursed
expenses 4,158 4,909 (751) -15%
General and
administrative 1,308 3,746 (2,438) -65%
------ ------ ------ ----
Total operating
expenses 15,490 20,543 (5,053) -25%
------ ------ ------ ----
OPERATING INCOME
BEFORE INCOME
TAXES 5,889 14,894 (9,005) -60%
Provision for
income taxes (29) (46) 17 37%
----- ------ ------ ----
NET OPERATING
INCOME 5,860 14,848 (8,988) -61%
----- ------ ------ ----
Net realised
foreign currency
gain (loss) 5,448 (6,397) 11,845 185%
Net realised loss
on investments (51,087) (67,005) 15,918 24%
------- ------- ------ ---
Total net realised
loss (45,639) (73,402) 27,763 38%
------- ------- ------ ---
------- ------- ------ ---
NET REALISED LOSS (39,779) (58,554) 18,775 32%
------- ------- ------ ---
Net unrealised
foreign currency
(depreciation)
appreciation (32,420) (20,211) (12,209) -60%
Net unrealised
appreciation
(depreciation)
of investments 70,817 82,228 (11,411) -14%
------ ------ ------- ----
Total net
unrealised
appreciation
(depreciation) 38,397 62,017 (23,620) -38%
------ ------ ------- ----
------ ----- ------ -----
(DECREASE) INCREASE
IN NET ASSETS
RESULTING FROM
OPERATIONS ("NET
(LOSS) EARNINGS") (1,382) 3,463 (4,845) -140%
====== ===== ====== =====
Nine Months Ended
Nine Months Ended 30 September
30 September 2010 Versus 2009
------------ ----------------
2010 2009 euro %
---- ---- ---- ---
OPERATING INCOME:
Interest and
dividend income 76,976 102,839 (25,863) -25%
Fee and other
income 1,109 738 371 50%
------ ------- ------- ----
Total operating
income 78,085 103,577 (25,492) -25%
------ ------- ------- ----
OPERATING EXPENSES:
Interest 38,788 46,929 (8,141) -17%
Management fee and
reimbursed
expenses 13,370 17,314 (3,944) -23%
General and
administrative 6,693 9,253 (2,560) -28%
------ ------ ------- ----
Total operating
expenses 58,851 73,496 (14,645) -20%
------ ------ ------- ----
OPERATING INCOME
BEFORE INCOME
TAXES 19,234 30,081 (10,847) -36%
Provision for
income taxes (109) (108) (1) -1%
------ ------ ------- ----
NET OPERATING
INCOME 19,125 29,973 (10,848) -36%
------ ------ ------- ----
Net realised
foreign currency
gain (loss) 22,478 (29,347) 51,825 177%
Net realised loss
on investments (43,496) (36,001) (7,495) -21%
------- ------- ------ ----
Total net realised
loss (21,018) (65,348) 44,330 68%
------- ------- ------ ---
------ ------- ------ ---
NET REALISED LOSS (1,893) (35,375) 33,482 95%
------ ------- ------ ---
Net unrealised
foreign currency
(depreciation)
appreciation (8,008) 44,561 (52,569) -118%
Net unrealised
appreciation
(depreciation)
of investments 67,926 (305,592) 373,518 122%
------ -------- ------- ----
Total net
unrealised
appreciation
(depreciation) 59,918 (261,031) 320,949 123%
------ -------- ------- ----
------ -------- ------- ----
(DECREASE) INCREASE
IN NET ASSETS
RESULTING FROM
OPERATIONS ("NET
(LOSS) EARNINGS") 58,025 (296,406) 354,431 120%
====== ======== ======= ====
IMPORTANT DISCLOSURES
NAV
Any valuation information relating to the portfolio companies of European Capital stated or referred to in this release has been determined by the Board of European Capital in good faith, on a basis consistent with past practice and for the purposes of complying with its reporting obligations under applicable laws.
Forward-looking statements
This document may contain "forward-looking statements." By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Many of these risks and uncertainties relate to factors beyond European Capital's control or which cannot be estimated precisely. These factors include, but are not limited to, uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional, national or international economic conditions, and changes in the conditions of the industries in which European Capital has made investments. Actual outcomes and results may therefore differ materially from any outcomes or results expressed or implied by any such forward-looking statements.
Performance data quoted above represents past performance of European Capital. Past performance does not guarantee future results and the investment return and principal value of an investment in European Capital will likely fluctuate. Additionally, European Capital's current performance may be lower or higher than the performance data quoted above.
Basis of preparation
This interim management statement has been prepared to provide further transparent information about European Capital and should not be relied on by any person for any other purpose. Financial information in this interim management statement is based on unaudited management accounts. Nothing in this document is intended to be, or should be construed as, a profit forecast.
ABOUT EUROPEAN CAPITAL
European Capital is an investment company for pan-European equity, mezzanine and senior debt investments with euro 1.1 billion in assets under management. European Capital is a wholly-owned affiliate of American Capital, Ltd ("American Capital"). It is managed by European Capital Financial Services (Guernsey) Limited ("ECFSG" or the "Investment Manager"), a wholly-owned affiliate of American Capital. The Investment Manager has offices in London and Paris. As of 30 September 2010 the Investment Manager had 5 investment teams with 22 investment professionals and employed 26 support staff. European Capital and its affiliates will consider investment opportunities from euro 5 million to euro 25 million. For further information, please refer to http://www.EuropeanCapital.com/.
ABOUT AMERICAN CAPITAL
American Capital 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, real estate and structured products. Founded in 1986, American Capital has $18 billion in capital resources under management and eight offices in the U.S., Europe and Asia. American Capital and its affiliates will consider investment opportunities from $5 million to $100 million. For further information, please refer to http://www.AmericanCapital.com/.
EUROPEAN CAPITAL FINANCIAL SERVICES, LTD. |
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London 25 Bedford Street London WC2E 9ES United Kingdom +44 (0)207 539 7000 +44 (0)207 539 7001 Fax |
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Paris Branch 37 Avenue Pierre 1er de Serbie 75008 Paris France +33 (0)1 40 68 06 66 +33 (0)1 40 68 06 88 Fax |
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Contact: European Capital Financial Services Limited + 44 207 539 7000 |
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Ira Wagner, President |
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Juan Carlos Morales Cortes, Director |
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Richard Smith, Finance Director |
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SOURCE European Capital Limited
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