ACAS Amends Credit Facility, Shares Rise


Shares of American Capital, Ltd. (ACAS) rallied higher on Wednesday, after the company announced the amendment of its senior secured term loan credit facility. The shares gained 1.57% and came in at $15.49.

The company amended $450 million senior secured term loan credit facility with the extension of maturity by one year to Aug 2017. JP Morgan Securities, LLC – a unit of JPMorgan Chase & Co. (JPM) – acted as joint lead arranger and sole book runner for the deal.

The amendment modified the company’s credit agreement by lowering the interest rate from LIBOR plus 3.00% to LIBOR plus 2.75% and the LIBOR floor from 1.00% to 0.75%. This initiative has considerably lowered the company’s borrowing expenses.

American Capital was significantly impacted by the global financial crisis, which restricted its access to the debt and equity capital markets. The market disruption and liquidity crisis also reduced the volume of mergers and acquisitions in the market, which affected the company’s ability to continue generating additional liquidity.

Owing to the strong demand along with the support of a wide range of debt investors, the amendment might act as a positive for the company. Further, American Capital will have more funds for new investments and hence will increase profitability.

Even though American Capital is striving to reduce its borrowing expenses by the amendment of senior secured term loans credit facility, the company still has a long way to go to make it completely debt free. As of Dec 31, 2013, American Capital’s total debt was $791 million.

However, we expect the gradual economic recovery and an improvement in interest rates to benefit the company in the upcoming quarters.

American Capital currently carries a Zacks Rank #5 (Strong Sell). Some better ranked stocks in the same sector include Apollo Investment Corp. (AINV) and Gladstone Investment Corp. (GAIN), with a Zacks Rank #2 (Buy).

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