Last week, American Capital (ACAS) announced its debt restructuring deal. Pursuant to the agreement, the company has reached a deal with lenders to restructure its revolving line of credit, which would provide for restructuring all of its $2.4 billion worth of unsecured debt by pledging substantially all of the company’s assets. 

This $2.4 billion of unsecured debt involves $1.4 billion in unsecured revolving credit facility, $550 million in public bonds and $415 million in private notes. The announcement came in as American Capital reported gain of 12 cents in third quarter 2009, compared with earnings of 74 cents in the similar period a year earlier. 

During 2008 and in the first three quarters of 2009, the company had been adversely affected by the unprecedented global financial crisis and economic downturn. American Capital has incurred a significant net loss and net unrealized depreciation in its portfolio investments, besides a decline in shareholders’ equity

As a result, the company has been in breach of certain financial covenants under its revolving facility and other unsecured debt borrowing arrangements. The breach has led to an increase in interest expenses for the company as the interest rates have been reset at higher levels. 

The restructuring, which is expected to close by the end of the year, calls for American Capital to immediately clear $450 million of debt and pay the remaining over the four-year period. It had also prevented the company from filing for bankruptcy, which earlier the management had threatened to. 

We believe this agreement along with $463 million of proceeds realized from portfolio investment repayments and exits during the third quarter will provide substantial liquidity to the company. Miller Buckfire & Co. will act as a negotiator to the restructuring deal.
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