OREANDA-NEWS. American Capital, Ltd. ("American Capital" or the "Company") (NASDAQ: ACAS) announced consolidated net operating income ("NOI") before income taxes for the quarter ended March 31, 2016 of $94 million, or $0.40 per diluted share, an 8% annualized return on equity.  Consolidated NOI for the quarter ended March 31, 2016 was $74 million, or $0.31 per diluted share.  Consolidated net loss for the quarter ended March 31, 2016 was $(80) million, or $(0.34) per diluted share.  As of March 31, 2016, net asset value ("NAV") per share was $20.14, a $0.26 per share increase from the December 31, 2015 NAV per share of $19.88.

Q1 2016 CONSOLIDATED FINANCIAL SUMMARY

  • $20.14 NAV per share outstanding
    • $0.26 per share increase from Q4 2015
    • 5% annualized economic return from Q4 2015
  • $0.40 NOI before income taxes per diluted share, or$94 million
    • 8%, or $0.03 per diluted share, increase over Q4 2015
    • 8% annualized return on equity
    • 10% annualized return on equity, excluding non-recurring costs
      • $8 million of severance related costs
      • $5 million of transaction costs associated with the strategic review process
  • $0.31 NOI after income taxes per diluted share, or$74 million
    • 29%, or $0.07 per diluted share, increase over Q4 2015, or $13 million
  • $(0.34) net loss per diluted share, or$(80) million
    • 61%, or $0.54 per diluted share, improvement over Q4 2015, or $147 million
  • $635 million of cash proceeds from realizations
    • $378 million from settled Senior Floating Rate Loans ("SFRLs")
    • $126 million from Sponsor Finance and Other Investments
    • $43 million from the sale of a significant portion of our commercial mortgage portfolio
  • $132 million of new committed investments
    • $65 million in Sponsor Finance and Other Investments
    • $33 million in American Capital Asset Management, LLC ("ACAM")
  • 21.2 million shares ofAmerican Capital common stock repurchased for$297 million
    • 8.7% of shares outstanding as of December 31, 2015
    • $13.96 average price per share
    • $0.53 per share accretive to March 31, 2016 NAV per share

"Given our ongoing strategic review process, we will not be conducting a shareholder call again this quarter," said Malon Wilkus, Chairman and Chief Executive Officer.  "However, we are providing significant information regarding the Company through our quarterly report on Form 10?Q, which we filed with the SEC today, along with today's press release announcing earnings plus earnings-related slides posted on our website."

"Our first quarter realizations, coupled with income from operations, contributed to our ability to repurchase $297 million of our stock in the quarter," continued Mr. Wilkus.  "We have now purchased $730 million under our current share repurchase program.  Through this program and our strategic review process, we remain focused on maximizing shareholder value."

PORTFOLIO VALUATION
For the quarter ended March 31, 2016, net unrealized depreciation, before income taxes, on American Capital's consolidated investment portfolio totaled $76 million.  The primary components of the net unrealized depreciation were:

  • $151 million net unrealized depreciation in ACAM primarily due to a reduction in projected management fees for managing AGNC and MTGE partially due to a decrease in the equity capital of each company as a result of share repurchases and net realized losses;
  • $30 million net unrealized depreciation in Structured Products investments primarily due to declining dealer marks and decreasing spreads on underlying collateral as certain investments are nearing the end of their life;
  • $27 million net unrealized depreciation in Sponsor Finance and Other Investments primarily driven by $13 million of unrealized depreciation associated with the payment to American Capital of a non-recurring cash dividend on equity investments and $14 million of net unrealized depreciation relating to declines across the debt portfolio as spreads widened during the quarter; partially offset by
  • $97 million reversal of prior period unrealized depreciation associated with net realized losses on portfolio investments;
  • $26 million net unrealized appreciation in American Capital One Stop Buyouts primarily driven by portfolio companies that are currently in a sales process.

"During the quarter, we completed the sale of a significant portion of our commercial mortgage portfolio and related fee agreements and select collateral administration rights," said John Erickson, Chief Financial Officer and President, Structured Finance.  "American Capital and its affiliates received net cash proceeds of $65 million, subject to post-closing adjustments, which had a fair value of approximately $40 million as of December 31, 2015, after incorporating post-December 31, 2015 adjustments."

PORTFOLIO PERFORMANCE
As of March 31, 2016, the weighted average effective interest rate on consolidated debt investments at cost, excluding Senior Floating Rate Loans and including non-accrual loans, was 8.6%, 10 basis points higher than the December 31, 2015 rate of 8.5%.  Excluding the impact of debt investments on non-accrual, the weighted average effective interest rate on consolidated debt investments at cost as of March 31, 2016, excluding Senior Floating Rate Loans, was 9.7%, 20 basis points higher than the December 31, 2015 rate of 9.5%.  The weighted average effective interest rate on European Capital's debt investments at cost as of March 31, 2016 was 1.7%, 100 basis points lower than the December 31, 2015 rate of 2.7%.  Excluding the impact of debt investments on non-accrual, the weighted average effective interest rate on European Capital's debt investments at cost as of March 31, 2016 was 7.5%, 200 basis points higher than the December 31, 2015 rate of 5.5%. The weighted average effective interest rate on consolidated debt investments at cost as of March 31, 2016 was 8.6%, 20 basis points higher than the December 31, 2015 rate of 8.4%.

As of March 31, 2016, excluding European Capital loans, loans with a fair value of $115 million were on non-accrual, representing 5.1% of total loans at fair value, compared to $103 million, or 4.4%, of loans at fair value as of December 31, 2015.  The $12 million increase in the fair value of loans on non-accrual was generally driven by the addition of a loan placed on non-accrual status.  Excluding European Capital loans, total loans on non-accrual were valued at 62.2% of cost at the end of the quarter, a 6.5% increase from the prior quarter.  This is an estimate of the amount the Company expects to recover on non-accruing loans.  Excluding European Capital 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 $92 million, or 3.9%.

As of March 31, 2016, European Capital loans with a fair value of $22 million were on non-accrual, representing 48.9% of total European Capital loans at fair value, compared to $18 million, or 16.8%, of European Capital loans at fair value as of December 31, 2015.  The $4 million increase in the fair value of European Capital loans on non-accrual was generally driven by an increase in fair value of existing loans on non-accrual.  Total European Capital loans on non-accrual were valued at 22.7% of cost at the end of the quarter, a 3.8% increase from the prior quarter.  The estimated loss on total European Capital loans at cost was $75 million, or 60.0%.

SHARE REPURCHASE PROGRAM
As previously announced, American Capital's share repurchase program, which began in the third quarter of 2015, contemplates the purchase of $600 million to $1 billion of shares of the Company's common stock.  Under the program, purchases will only be made at per share prices below 85% of the Company's net asset value per share and will be subject to certain other conditions.  The Company entered into a Rule10b5-1 trading plan to undertake accretive share repurchases on a non-discretionary basis up to the $1 billion limit.  As of March 31, 2016, the Company has purchased a total of $730 million of our common stock under this program.

During the first quarter of 2016, American Capital made open market purchases of 21.2 million shares, or 8.7% of the Company's outstanding shares as of December 31, 2015, for an aggregate price of $297 million, of American Capital common stock at an average price of $13.96 per share.  Since August 2011, American Capital has made open market purchases of 159.7 million shares, or $2.0 billion, of American Capital common stock at an average price of $12.62 per share.  This represents 46% of shares outstanding immediately prior to August 2011.