ACAS American Capital, Ltd.

On Wednesday, American Capital Ltd. (ACAS) announced the completion of the refinancing of its total recourse debt. The secured debt is being refinanced by a new 4-year $600 million institutional term loan facility with a LIBOR floor of 1.25%. The proceeds, along with repayment of the existing recourse debt, will be utilized for working capital and general corporate purposes.

American Capital also obtained a new 4-year $250 million senior secured revolving credit facility. This credit facility includes a 3-year revolving period and has the option of expanding up to $375 million. The proceeds from the revolving credit facility will also be utilized for working capital and general corporate purposes.

The new term loan facility is priced at LIBOR plus 4.25%, while the revolving credit facility is priced at LIBOR plus 3.75%. Furthermore, the term loan facility has a first lien on some non-securitized assets of American Capital, while revolving credit facility has a first lien on some non-securitized loan assets of the company.

Moreover, both the loan facilities have a second lien on the company’s mostly residual non-securitized assets.

For both the transactions, J.P. Morgan Chase Bank, N.A., a unit of JPMorgan Chase & Co. (JPM) acted as an administrative agent as well as guarantor. Moreover, J.P. Morgan Securities LLC, BMO Capital Markets Corp. and UBS Securities LLC, a unit of UBS AG (UBS) served as joint lead arrangers and joint bookrunners on the deals.  

Managers for the deals include – Citibank, N.A., banking arm of Citigroup Inc. (C), Credit Suisse Securities (USA) LLC, a subsidiary of Credit Suisse Group (CS) and Goldman Sachs Bank USA, a subsidiary of The Goldman Sachs Group Inc. (GS).  Bank of America, N.A., a subsidiary of Bank of America Corporation (BAC) acted as managing agent for revolving credit facility transaction.

Owing to the strong demand along with the support of a wide range of debt investors, the new loan facility will be a positive for the company. Moreover, these transactions augment the company’s capital position and reduce interest expenses. Therefore, American Capital will have more funds for new investments and hence will increase profitability.

American Capital currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. However, considering the fundamentals, we maintain our ‘Neutral’ recommendation on the stock.
 

 
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