ACAS American Capital, Ltd.

BETHESDA, Md., July 31 /PRNewswire-FirstCall/ -- American Capital Strategies Ltd. (NASDAQ:ACAS) ("American Capital") announced today the further expansion of its alternative asset management business through the establishment of its first commercial real estate collateralized debt obligation trust, ACAS CRE CDO 2007-1 Ltd. ("ACAS CRE CDO"). ACAS CRE CDO is backed by 121 subordinate tranches of bonds ("CMBS Bonds") issued by 22 commercial mortgage backed securities trusts. American Capital had purchased the CMBS bonds starting in December 2005. American Capital's cost basis in these bonds total $642 million with a principal balance of $1.2 billion. American Capital sold the full amount of these bonds to ACAS CRE CDO. Third party investors in the ACAS CRE CDO purchased AAA through A- bonds for a total purchase price of $411 million with a principal balance of $412 million. American Capital purchased investment grade, non-investment grade and preferred shares of the ACAS CRE CDO for a total purchase price of $215 million with a principal balance of $763 million. Included in American Capital's $215 million purchase is a $121 million investment in the BBB+ bonds through the preferred shares that was priced to yield a 15% compounded annual return over the life of the investment after expected losses, not including the asset management fees. From 2005 through today, there have been no losses on the underlying mortgage loans in the CMBS trusts. In conjunction with the sale of the CMBS bonds to ACAS CRE CDO, American Capital recorded a realized loss in the third quarter on the sale of approximately $28 million and a gain of approximately $8 million in the second quarter on the breakage of interest rate swaps related to the CMBS pool. Including this loss, American Capital's compounded annual return since 2005 on the CMBS bonds sold to ACAS CRE CDO was 3%. A subsidiary of American Capital LLC, a third party alternative asset manager that is a wholly-owned portfolio company of American Capital, manages ACAS CRE CDO in exchange for an annual senior management fee of 7.5 basis points and a subordinate fee of 7.5 basis points on $1.2 billion of principal amount, or $1.8 million annual total. Subsequent to structuring this transaction, American Capital has invested $54 million in the non-rated to BB+ bonds of a CMBS trust with a current loss adjusted return of 14%. In total, American Capital now has about 3% of its investments in subordinated tranches of bonds of CMBS trusts and the ACAS CRE CDO. "We are pleased that we were able to execute this transaction in a turbulent market. This is a testament to the quality and reputation of our real estate team and the quality of our commercial real estate assets," said John Hooker, American Capital Vice President, Debt Capital Markets. "The underlying commercial real estate assets in ACAS CRE CDO are performing well and have had zero losses." "Since 2005, American Capital has built a diverse commercial real estate portfolio invested in 25 pools of mortgage loans of outstanding credit quality," said Doug Cooper, Managing Director, Commercial Real Estate Asset Management Group. "The launch of ACAS CRE CDO allows us to sell $642 million of those investments while reinvesting $121 million in the BBB+ to preferred shares in the CDO at mid-teen rates of return. We also purchased $94 million in investment grade bonds rated above BBB+ that we believe are at attractive risk adjusted spreads considering today's credit environment." ABOUT AMERICAN CAPITAL American Capital is the only alternative asset management company in the S&P 500. With $15 billion in assets under management(1), American Capital is the largest U.S. publicly traded private equity fund and one of the largest publicly traded alternative asset managers. American Capital, both directly and through its global asset management business, is an investor in management and employee buyouts, private equity buyouts, and early stage and mature private and public companies. American Capital provides senior debt, mezzanine debt and equity to fund growth, acquisitions, recapitalizations and securitizations. American Capital and its affiliates invest from $5 million to $800 million per company in North America and ?5 million to ?500 million per company in Europe. As of June 30, 2007, American Capital shareholders have enjoyed a total return of 578% since the Company's August 1997 IPO - an annualized return of 22% assuming reinvestment of dividends. American Capital has paid a total of $1.7 billion in dividends and paid $24.24 dividends per share since IPO at $15 per share. Companies interested in learning more about American Capital's flexible financing should contact Mark Opel, Senior Vice President, Business Development, at (800) 248-9340, or visit http://www.americancapital.com/ or http://www.europeancapital.com/. (1) Includes internally and externally managed assets at fair value as of 3/31/07, including our investments in externally managed funds, plus investments at cost through 6/30/07 and less repayments through 6/30/07. These securities have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States or to U.S. persons except in accordance with the resale restrictions applicable thereto. These securities having been previously sold, this announcement appears as a matter of record only. 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. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including 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. DATASOURCE: American Capital Strategies Ltd. CONTACT: Tom McHale, Senior Vice President, Finance; Doug Cooper, Managing Director, Commercial Real Estate Asset Management Group; John Hooker, Vice President, Debt Capital Markets; Brian Maney, Director, Corporate Communications; all of American Capital Strategies Ltd., +1-301-951-6122 Web site: http://www.americancapital.com/

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