American Capital, Ltd.
) 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.
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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.
) - acted as joint lead arranger and sole book runner for the
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
American Capital currently carries a Zacks Rank #5 (Strong Sell).
Some better ranked stocks in the same sector include
Apollo Investment Corp.
Gladstone Investment Corp.
), with a Zacks Rank #2 (Buy).