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American Capital Reports NOI Before Income Taxes Of $0.40 Per Diluted Share, Net Loss Of $(0.14) Per Diluted Share And NAV Per Share Of $20.44

BETHESDA, Md., Nov. 4, 2015 /PRNewswire/ -- American Capital, Ltd. ("American Capital" or the "Company") (ACAS) announced consolidated net operating income ("NOI") before income taxes for the quarter ended September 30, 2015 of $108 million, or $0.40 per diluted share, an 8% annualized return on equity. Consolidated NOI after income taxes for the quarter ended September 30, 2015 was $75 million, or $0.28 per diluted share. Consolidated net loss for the quarter ended September 30, 2015 was $(37) million, or $(0.14) per diluted share. As of September 30, 2015, net asset value ("NAV") per share was $20.44, a $0.09 per share increase from the June 30, 2015 NAV per share of $20.35.

Q3 2015 CONSOLIDATED FINANCIAL SUMMARY

  • $20.44 NAV per share outstanding
    • $0.09 per share increase, or 2% annualized, over Q2 2015
  • $0.40 NOI before income taxes per diluted share, or $108 million
    • 18%, or $0.06 per diluted share, increase over Q2 2015, or $11 million
    • 67%, or $0.16 per diluted share, increase over Q3 2014, or $42 million
    • 8.0% annualized return on equity
  • $0.28 NOI after income taxes per diluted share, or $75 million
    • 17%, or $0.04 per diluted share, increase over Q2 2015, or $8 million
  • $(0.14) net loss per diluted share, or $(37) million
    • $0.36 per diluted share, decline from Q2 2015, or $99 million
  • $494 million of cash proceeds from realizations
    • $262 million from Senior Floating Rate Loans ("SFRLs")
  • $691 million in new committed investments
    • $223 million in Senior Floating Rate Loans
      • Funded by drawing on a credit facility
    • $177 million in Sponsor Finance Investments
    • $147 million in Structured Products
  • 9.7 million shares of American Capital common stock repurchased for $135 million
    • 3.6% of shares outstanding as of June 30, 2015
    • $13.82 average price per share
    • $0.23 per share accretive to September 30, 2015 NAV per share

"This was an important quarter for American Capital for two reasons," said Malon Wilkus, Chairman and Chief Executive Officer. "First, our annualized pretax per share NOI return on equity improved to 8% this quarter. Our NOI before income taxes was $108 million, or $0.40 per diluted share, up 67% from the comparable period in 2014 and reflects our ongoing efforts to reposition our balance sheet and improve NOI. Second, and more importantly, we made significant progress on our previously announced plan to spin-off a new BDC, American Capital Income, to our shareholders by making our initial filings with the SEC in late September and last week receiving the IRS private letter ruling for the tax free nature of the spin-off. In addition to our regular earnings materials being issued today, we will post a slide presentation that provides financial forecasts and related assumptions for American Capital and American Capital Income, reflecting the spin-off and American Capital's continuing operation as an asset management company managing our existing funds under management and American Capital Income."

PORTFOLIO VALUATION
For the quarter ended September 30, 2015, net unrealized depreciation, before income taxes, on American Capital's consolidated investment portfolio totaled $60 million. The primary components of the net unrealized depreciation were:

  • $55 million unrealized depreciation of American Capital Asset Management primarily due to a reduction in projected management fees for managing American Capital Agency Corp. and American Capital Mortgage Investment Corp. due to a decrease in the equity capital of each company as a result of share repurchases and realized losses;
  • $45 million net unrealized depreciation of American Capital One Stop Buyouts® primarily driven by declining performance in one portfolio company;
  • $45 million net unrealized depreciation of Structured Products investments primarily due to unrealized depreciation on our CLO investment portfolio as a result of a decline in forecasted cash flows and lower dealer marks;
  • $26 million net unrealized appreciation of European Capital investments; and
  • $70 million reversal of prior period unrealized depreciation upon realization.

"During the quarter we repurchased 9.7 million shares of our common stock for $135 million, which resulted in $0.23 per share of accretion in the net asset value of our remaining shares," said John Erickson, Chief Financial Officer and President, Specialty Finance. "We remain committed to our previously announced share repurchase program. If our share price generally remains at current levels, we would expect our repurchases to aggregate to the high end of the previously announced range of $300 million to $600 million. In addition, we expect to undertake a tender for outstanding stock options in connection with the spin-off transaction, assuming that we receive the necessary shareholder approval to use our shares for the tender, and the tender will result in reduced dilution from stock option exercises."

"We originated $177 million in the third quarter and an additional $138 million in October of Sponsor Finance investments," said Brian Graff, President, Private Finance. "We continue to make strong progress in achieving our goals for deploying Sponsor Finance assets. Currently, we are seeing a substantive dislocation in the credit markets due to increased volatility in the high yield bond market and large banks digesting previously underwritten credits. As a result, we have a robust fourth quarter pipeline with many larger than normal borrowers and opportunities for increasing yields. It is also worth noting that we have no securities on non-accrual in our Sponsor Finance portfolio."

PORTFOLIO PERFORMANCE
As of September 30, 2015, the Company's investments in Senior Floating Rate Loans were diversified across 257 portfolio companies and 51 industries, with the average issuer concentration at $8.7 million and no single company representing more than 1.7% of the Company's Senior Floating Rate Loan portfolio. The weighted average effective interest rate on the Company's Senior Floating Rate Loan portfolio as of September 30, 2015 was 4.2%. As of September 30, 2015, the weighted average effective interest rate on the consolidated debt investments, excluding Senior Floating Rate Loans and inclusive of non-accrual loans, was 8.7%, 10 basis points lower than the June 30, 2015 rate of 8.8%. The weighted average effective interest rate on European Capital's debt investments as of September 30, 2015 was 3.7%, 40 basis points lower than the June 30, 2015 rate of 4.1%. Excluding the impact of debt investments on non-accrual, the weighted average effective interest rate on European Capital's debt investments as of September 30, 2015 was 7.6%, 40 basis points lower than the June 30, 2015 rate of 8.0%. The weighted average effective interest rate on consolidated debt investments as of September 30, 2015 was 6.5%, 10 basis points higher than the June 30, 2015 rate of 6.4%.

As of September 30, 2015, excluding European Capital loans, loans with a fair value of $85 million were on non-accrual, representing 2.0% of total loans at fair value, compared to $109 million, or 2.7%, of loans at fair value as of June 30, 2015. The $24 million decrease in the fair value of loans on non-accrual was generally driven by net depreciation of existing non-accrual loans and the removal of one loan from non-accrual. Total loans on non-accrual were valued at 47.5% of cost at the end of the quarter, a 13.7% decrease 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 $94 million, or 2.2%.

As of September 30, 2015, European Capital loans with a fair value of $42 million were on non-accrual, representing 21.6% of total European Capital loans at fair value, compared to $28 million, or 15.5%, of European Capital loans at fair value as of June 30, 2015. The $14 million increase in the fair value of European Capital loans on non-accrual was driven by net appreciation of one existing non-accrual loan. Total European Capital loans on non-accrual were valued at 37.1% of cost at the end of the quarter, an 18.9% increase from the prior quarter. The estimated loss on total loans at cost was $121 million, or 38.1%.

SHARE REPURCHASE PROGRAM
As previously announced, American Capital's Board of Directors modified its Share Repurchase Program beginning in the third quarter of 2015. Under the program, American Capital will purchase between $300 million and $600 million of common stock at prices per share below 85% of its most recent quarterly net asset value per share, subject to certain conditions. The purchases will be made prior to the previously announced spin-off of American Capital Income, Ltd. by the Company.

During the third quarter of 2015, American Capital made open market purchases of 9.7 million shares, or 3.6% of the shares outstanding as of June 30, 2015, for an aggregate price of $135 million, of American Capital common stock at an average price of $13.82 per share. Since the inception of the program in August 2011, American Capital has made open market purchases of 117.8 million shares, or $1.4 billion, of American Capital common stock at an average price of $12.05 per share. This represents 34% of shares outstanding immediately prior to the launch of the program.

AMERICAN CAPITAL, LTD.

CONSOLIDATED BALANCE SHEETS

As of September 30, 2015, June 30, 2015 and December 31, 2014

(in millions, except per share amounts)














Q3


Q2


Q3 2015 Versus Q2 2015


Q4


Q3 2015 Versus
Q4 2014


2015


2015


$


%


2014


$


%


(unaudited)


(unaudited)











Assets














Investments at fair value (cost of $6,921, $7,013 and $6,417, respectively)

$

7,106



$

7,260



$

(154)



(2%)


$

6,280



$

826



13%

Cash and cash equivalents

244



274



(30)



(11%)


676



(432)



(64%)

Restricted cash and cash equivalents

97



78



19



24%


167



(70)



(42%)

Interest and dividend receivable

53



50



3



6%


46



7



15%

Deferred tax asset, net

263



264



(1)



—%


354



(91)



(26%)

Trade date settlement receivable

304



32



272



850%


4



300



NM

Other

101



127



(26)



(20%)


113



(12)



(11%)

Total assets

$

8,168



$

8,085



$

83



1%


$

7,640



$

528



7%















Liabilities and Shareholders' Equity














Debt

$

2,649



$

2,107



$

542



26%


$

1,703



$

946



56%

Trade date settlement liability

77



402



(325)



(81%)


191



(114)



(60%)

Other

135



120



15



13%


274



(139)



(51%)

Total liabilities

2,861



2,629



232



9%


2,168



693



32%















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, 263.3, 271.9 and 271.1 issued and 259.6, 268.1 and 266.9 outstanding, respectively

3



3





—%


3





—%

Capital in excess of par value

6,112



6,231



(119)



(2%)


6,246



(134)



(2%)

Cumulative translation adjustment, net of tax

(109)



(116)



7



6%


(38)



(71)



(187%)

Distributions in excess of net realized earnings

(806)



(824)



18



2%


(505)



(301)



(60%)

Net unrealized appreciation (depreciation) of investments

107



162



(55)



(34%)


(234)



341



NM

Total shareholders' equity

5,307



5,456



(149)



(3%)


5,472



(165)



(3%)

Total liabilities and shareholders' equity

$

8,168



$

8,085



$

83



1%


$

7,640



$

528



7%















NAV per common share outstanding

$

20.44



$

20.35



$

0.09



—%


$

20.50



$

(0.06)



—%



























AMERICAN CAPITAL, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2015, June 30, 2015 and September 30, 2014

(in millions, except per share data)

(unaudited)
















Q3


Q2


Q3 2015 Versus
Q2 2015


Q3


Q3 2015 Versus
Q3 2014


2015


2015


$


%


2014


$


%















OPERATING REVENUE














Interest and dividend income

$

165



$

151



$

14



9%


$

115



$

50



43%

Fee income

11



17



(6)



(35%)


14



(3)



(21%)

Total operating revenue

176

...

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