Private Equity Stock Review, Wednesday 3/09/2011.
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1. American Capital (ACAS) $9.19. Short and Sweet and a Good Story to Boot.
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1. American Capital (ACAS) $9.25. Short and Sweet and a Good Story to Boot.
Adding American Capital to Private Equity Stock Review Watch List at $9.19
American Capital is an unknown Private Equity firm with $23 billion in assets, which cratered from $49 per share in February of 2007, to $0.63 exactly two years ago today, when the world looked like it was going to end and then did an army crawl back up to $9.00.
4 Year Chart:
This is short and sweet and a good story to boot. This is a "long term" idea which will most definitely be affected (both positively and negatively) by the market itself. It starts like this:
February 15th 2011.
"We earned $1.0 billion ($3 per share) in 2010 and repaid $1.9 billion of debt, while growing NAV per share to $10.71, delivering a 34% return on equity. We believe this is just the beginning of a growth phase for the economy and American Capital, and we look forward to continuing the progress we made last year in 2011." Malon Wilkus CEO
Here a some additional tidbits from the year end just reported:
$1,293,000,000 of cash proceeds were received from realizations of portfolio investments and exits.
$1,370,000,000 net unrealized appreciation of investments.
Now here's the story gets good -- well not actually good, but interesting as heck.
In March of 2009, Malon Wilkus had 1 million of his own American Capital shares "foreclosed" on him. Just imagine what that was like. The stock goes from $35 ($35 million) to $0.63 ($630,000), the world looks like it's going to end and then your own firm takes away your stock (and chances to make it back if the market recovers), because you got a loan against it. Oh the humanity.
He originally pledged as collateral for the loans the 208,200 shares of common stock purchased with the proceeds of the loans and had recently pledged the additional 852,456 shares of the Company's common stock that were also foreclosed.
(Pursuant to the loan agreements, the collateral value of the original shares was the greater of the common stock's net asset value per share (NAV) and its fair market value. As a result of the decline in the NAV and Fair Market Value, Mr. Wilkus' loans became under collateralized on March 1, which triggered an automatic event of default and involuntary foreclosure by the Company. At March 1, the NAV was $15.41 per share and the Fair Market Value was $2.13 per share.)
Here was a press released issued that day -- ignored by the vultures who should have smelled blood, because the world really did look like it was going to end with the Dow at 6,594 and dropping 400 points a day. We remember well because we were on the trading floor of the Chicago Stock Exchange and we remember looking up at he ticker tape, turning right around and walking off the floor. Cocktails !
I have always prided myself on never selling a share of American Capital stock," said Mr. Wilkus. "Over the years, I purchased additional shares of stock on the market and through the dividend reinvestment plan, some of it with the proceeds of borrowings. In fact, from mid-2007 to mid-2008, I purchased almost 120,000 shares on the market. Like many others, I never imagined that our stock could trade at such a discount to its intrinsic value.
"As the stock price declined in recent months, I used much of my personal resources to repay outstanding loans to the Company and others, rather than selling the stock in which I so strongly believe," continued Mr. Wilkus. "This included pledging over 850,000 additional shares, which were previously unencumbered, in order to provide additional collateral for my stock loans from American Capital. Unfortunately, with the latest decline in our NAV and stock price, I did not have the resources to protect the loans any further and the foreclosure occurred. I remain a substantial shareholder with over 630,000 vested and unvested shares in the Company's Incentive Bonus Plan, most of which I am generally unable to sell for eight years. I am completely focused on getting the share price once again to reflect the Company's intrinsic value, which will benefit all of our stockholders, including myself."
During 2002, the Company accelerated the maturity of $23 million in loans made to 27 other employees under the Company's employee stock option loan program, and foreclosed upon 981,000 shares of common stock as a result of a significant decrease in the value of the Company's stock price. Those shares are included in treasury stock and are not included in outstanding shares of common stock. The Company has no further employee stock option loans outstanding.
(Lesson for all, don't use margin without tight stop losses -- not even if its your own company.)
We'll take a stab in the dark guess it WAS NOT a fun place to be working with 28 sad faces walking around in March of 2009.
Persons considering an investment in American Capital should consider the investment objectives, risks and charges and expenses of the Company carefully before investing. Such information and other information about the Company is available in the Company's annual reports on Form 10-K and Form 10-K/A, quarterly reports on Form 10-Q and in the prospectuses the Company issues from time to time in connection with its offering of securities. Such materials are filed with the Securities and Exchange Commission ("SEC") and copies are available on the SEC's website, www.sec.gov. Prospective investors should read such materials carefully before investing. 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.
Going Concern Statements.
We would like to point out that the majority of companies listed on the
OTC Bulletin Board have factors which create an
uncertainty about the their ability to continue as a going concern. These
concerns are typically related to financing (or lack of), competitive
environments, lack of operating history and operating at loss levels which
is typical of most start-ups.
These statement can usually be found in their most recent 10Q filings and
typically you don't have to dig to far down past the financial tables. We
like to use http://www.pinksheets.com for quick and easy access to SEC
filings. We think it would be wise for most investors to assume that all
companies listed on the OTC Bulletin Board (and many on NASDAQ) have going
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