ACAS Reports NOI of $0.67 compared to a Div of $0.00 PRNewswire 02-14
American Capital announced Q4-11 total operating income $160 million [$0.4652/share]; net operating income before tax benefit of $84 million [$0.2443/share]; and net operating income after tax benefit (which will be amortized over several forward quarters) of $229 million [$0.67/share] and a net earnings of $594 million [$1.73/share]. ACAS' Q4-11 Net Realized Gain was $137 million [$0.40/share]. The net realized appreciation was -$92 million [-$0.27/share] while unrealized appreciation was $457 million [$1.33/share]. NAV
was $13.87 compared with $11.92 last quarter and $13.16 at the end of Q2-11. During Q4 ACAS repurchased 8.4 million shares [$59 million] of stock at an average price of $6.97/share - which was $0.17/share accretive to NAV.
ACAS has investments in 203 Portfolio companies
[152 in ACAS and 51 in ECAS]. Senior debt was 16% of ACAS' portfolio at fair value; Mezzanine debt was 24%; and equity assets were 30% [19% preferred; 11% common]; 9% in equity in Eurpean Capital, 14% in 'non-investment assets'; 4% in structure proudcts; 2% in revolving credit failities and 1% in warrants. The effective yield on debt investments was 10.7% while the weighted average cost of borrowings was 4.3$.
In August 2011 ACAS did an IPO for $200 million of American Capital Mortgage [ticker MTGE]. MTGE manages $1.7 billion in assets. The other ACAS publicly traded fund is American Capital Agency Corp [AGNC] - which has $58 billion in assets under management. ACAS has 3 'private finance' funds [which includes European Capital or ECAS] and one $388 million [total assets under management] CLO. ECAS has $1.5 billion in assets under management. ACAS has a fair value of $621 million invested in ECAS.
With Long-term debt ['debt'] of $1.251 billion and shares outstanding of 336.4 million, the Debt/share was $3.7187 and the Debt/NAV ratio was 26.81%. As of 12-31-11, loans with a cost of $419 million [$569 million last quarter] were on non-accrual representing 15.3% [18.6% last quarter] of the portfolio. [There were $189 million of write-offs or conversions to equity of non-accruing loans; $10 million of loans that became accruing; and $49 million in new non-accruals.] Loans with a fair value of $219 million [$173 million last quarter] were on non-accrual representing (219/2518) 8.7% [6.6% last quarter] of the portfolio. ACAS portfolio companies [2001 to 2011 pool] had a Debt to EBITDA was 5.0x; a 2.6x average Interest Coverage Ratio and debt service coverage ratio of 2.0x.
ACAS has a current dividend of $0.00/share
Total Investment (and operating) Income $160 million [divided by 343.9 million average shares = $0.4652/share]
Interest Expenses = - $21 million [- $0.0611/share]
Total Investment Expenses = - $76 million [- $0.2210/share]
(NII + Asset Management Income) Net Operating Income = $84 million [$0.2443/share]
(NII + Asset Management Income) NOI after tax benefit = $229 million [$0.6659/share]
Net realized appreciation = - $92 million [- $0.2675/share]
(NII + asset management inc + realized gains) Realized Earnings = $137 million [$0.3984/share]
Unrealized Appreciation (loss) = $457 million [$1.3289/share]
(Earnings) Increase in Net Assets Resulting from Operations = $594 million [$1.7272/share]
Investments at fair value = $5,130 million
Cash and cash equivalents = $ 204 million
Conference Call Notes:
2011 was a volatile but good year. For Q4-11 ACAS had a 10.7% weighted average yield of debt investments and 4.3% weighted average cost of borrowings. NAV was up 30% for the year while the S&P financial sector NAV had a decrease of 17%. When ACAS became a C Corp, it began its ability to have deferred tax assets. Since its IPO, ACAS has had a 17% annual return on its equity investments.
ECAS had depreciation during the quarter - many of its portfolio companies had decreases in book value. EBITDA for those companies has been falling. Despite the current problems, ACAS sees some great opportunities for new investments there. With ACAS now a C Corp, it can retain earnings. ACAS projects buying back more share below NAV. And the valuation of the portfolio companies is projected to rise. Those three forces will drive continued NAV growth.
Wells Fargo - you deserve credit for buying back debt. Any thoughts about spinning off debt assets to a new BDC? AGNC very quickly grew to having $7 billion in assets> ACAS: Spinning off performing debt assets into a BDC that could support a good dividend is an option. 20% of our assets are in that category - which is still a sizeable number. But spinning off some assets would make it more difficult to return the whole of ACAS back into a BDC. We do want to utilize and protect the differed tax asset.
Greg Mason with Stefil Nicholas: Your differed tax benefit had over a billion of ordinary losses. Assume $300 million of income per year - does that mean it could take three years to go through the differed tax benefit - and does that mean that a return to paying a dividend is three year away? ACAS: The dividend is not dependant on that. It relates to ACAS being below NAV. Any one time items in Q4? ACAS: $27 million in prior non-accrual income was reversed - which grew income this quarter.
GNA went up a lot - what is a run rate? ACAS: Bonus accrual was up in Q4-11. $2 million in franchise taxes fell into GNA. Color on valuation assessments of your asset managers? ACAS: We generally do not give much detail on that.
Which categories do you see getting more active? ACAS: We are keen on making new investments - and bidding on quite a number on private equity buy-outs. But it is a competitive environment out there. In 2011, we had anticipated doing more in buy-outs - so we did do more in ACAS share buy-backs. We have some 8.75% debt that we can buy back - which is relatively expensive.
USB: Without a revolver - how do you handle winning more deals than expected? ACAS we ended the year with $204 million in cash - witch is plenty to do the investing we do each quarter. Average new investments are at around $35 million. There has never been a time where we were not able to make new investments due to liquidity. What is the priority in the choice of new investments, supporting existing investments; debt pay back and share buy backs? ACAS: It is important to do all of them. We want to bring our debt down on a regular basis. The share buy backs at this discount is an opportunity. And we want to stay in the market for new investments.
What are you seeing on new deal yields? ACAS: We are seeing attractive yields - we are seeing attractive buy out opportunities. What is the ideal leverage ratio - and any change to re-fi. ACAS: We would like to get to a point where we can have a new revolver in place. We would need to retire more debt before we can do that.
What is the outlook for realizations? ACAS: Realizations are providing liquidity. There was great volume in early 2011 - but things changed in Q3-11 - and it is still lower than average [both in Q4 and so far in Q1-12]. We have had deals pulled from the market. Things are getting better in the M&A market. The [EBITDA] multiples on buyout have been higher than average - there are just less buyers out there.
When will you get back to being a BDC? ACAS: We are still a BDC - we are just not a 'RIC'. And the decision on paying dividends is separate from that issue. We will pay dividends if shares sell above NAV. We are prepared to pay dividends. We would love to pay dividends. Would a div paid as a C crop be a qualified dividend? ACAS: Yes.
What is the secret to getting the stock price up to your NAV? ACAS: Having a regular program of buying back shares will help that. All we can do is deliver good ROEs.