American Capital Ltd.
) announced the repurchase of its common stock worth $125.0 million
in open market in the third quarter of 2012. The company
repurchased a total of 11.4 million shares of its common stock at
an average price of $10.99 per share. Number of shares repurchased
represent 3.6% of the company's outstanding shares of common stock
as of June 30, 2012.
Since the initiation of the new program of capital deployment in
September 2011, American Capital has repurchased 43.6 million
shares of its common stock for $392.3 million, including the
current buyback. The average purchase price came in at $9.00 per
As of June 2012, share repurchases improved the company's net asset
value (NAV) per share by 65 cents, bringing the total to $16.62.
However, in the absence of this share buyback activity, American
Capital would have been required to earn an additional $207 million
during the past four quarters since June 2011, to record the
current level of NAV per share.
The company is progressing with its capital deployment policy based
on the new program adopted. According to the plan, American Capital
keeps aside a certain amount for either stock repurchases or
dividend payments, on a quarterly basis. The quarterly amount
depends on the company's cumulative net cash from operating
activities in the prior quarter and since the beginning of 2012.
Further, cash and cash equivalents in hand, cumulative repurchases
or dividends, debt position, investment plans and operational
issues are also the determining factors of the quarterly amount.
Last but not the least, the current trading price of American
Capital's common stock, its financial liquidity and the ongoing
economic conditions are also taken into consideration.
As per the company's plan, if the price of American Capital's
common stock trade is at a discount to the net asset value of
shares, the company will opt for share repurchase. On the other
hand, if the price trades at a premium, the company will decide on
The authorization of the new share buyback program and resumption
of dividend payments raise our hopes for an enhanced investor
confidence in the company. During the last quarter, American
Capital's asset coverage ratio improved substantially to 661% from
552% in the prior quarter. The company also repaid securitized debt
of $191 million and increased investments by $103 million while
strengthening its balance sheet.
Moreover, last month, the company completed the refinancing of its
total recourse debt. The secured debt was being refinanced by a new
4-year $600 million institutional term loan facility with a LIBOR
floor of 1.25%. The proceeds along with repayment of the existing
recourse debt will be utilized for general corporate purposes.
American Capital's successful restructuring of debt furnished it
with sufficient operating flexibility. In addition, the company
continues to de-risk its balance sheet through a number of
initiatives including repayment of debt. Owing to the strong demand
along with the support of a wide range of debt investors, the new
loan facility will be a positive for the company.
AMER CAP LTD (ACAS): Free Stock Analysis Report
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Moreover, these transactions augment the company's capital position
and reduce interest expenses. However, the unstable economy and
interest rate fluctuations could limit profitability and
deteriorate the company's strategic position in this sector.
American Capital currently retains its Zacks #2 rank, which
translates into a short-term Buy rating. However, one of its peers,
Main Street Capital Corporation
), retains a Zacks #1 rank (a short-term 'Strong Buy' rating).