Wednesday, September 16, 2009

American Capital up 33% on portfolio company sale (ACAP)

AlphaNinja - American Capital (ACAS), a Business Development Company, is up big today on news it sold one of its portfolio companies to Corning (GLW) for $400million. And this is only ONE of ACAP's 277 portfolio companies. Note the impressive diversification among industries:

ACAP is a publicly traded private equity company - they buy small, well-run private businesses, with the selling point that they are a one-stop shop in terms of financing. I sometimes wonder why (some) geniuses in the private equity world would voluntarily subject themselves to the scrutiny of the public markets, but there are advantages - among them certain tax structures, and the "dumber" money they can attract from any old Joe who'll buy stock.

ACAP is selling Axygen Bioscience to Corning for $400million in cash. The bump today in the stock price has added only $244million to ACAP's market value - well, taxes will take a bite.

With 276 other portfolio companies, why is ACAP so far off its previous highs? For one thing, they flirted with insolvency recently thanks to a spat with lenders. In a somewhat complex (not to mention expensive) scenario, ACAP was served "notices of acceleration" on $393million of its over $2billion in debt. That would've sped up the repayment period, and been disastrous. Fortunately, ACAP got other debt holders to back them up with their votes allowing ACAP to pay a bit more in interest and at a higher rate, but put off the repayment. Today's deal gives the company more breathing room.

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