American Capital Posts Loss, Is in Breach of Covenants

Bethesda-based American Capital reported this morning that it lost $1.68 billion in the fourth quarter of 2008 and $3.11 billion for the full year, saying that "is a result of the economy falling into a severe recession including the tremendous reduction in liquidity in most markets leading to a reduction in acceptable offers for our assets."

The private-equity firm, which invests in mid-size companies, also said it is in breach of certain financial covenants. American Capital also said its auditors, Ernst & Young, "included a going concern explanatory paragraph in their opinion" on its financial statements because of the covenant breaches.

Steven Burge, president North American Private Finance, said the company stopped the sales process on six companies because it appeared that bidders thought anyone who was selling anything during that time was doing it out of necessity. "Since we are a long-term, patient investor, we elected to wait rather than sell at distressed prices," he said.

CEO Malon Wilkus said the company reduced its head count by 32 percent, offices by 29 percent and bonuses by 93 percent in 2008. He also said employees and directors of American Capital own about 11 million shares* of stock and have 34 million options "deeply underwater."

"So, along with you, we have been personally devastated by the decline in our stock price," he said. "It will be a challenge to navigate through this terrible recession, but we have a diverse and high quality portfolio, an entrepreneurial spirit and an exceptional team who are working passionately to rebuild shareholder value."

Shares were trading down more than 15 percent around 11:40, at $1.14 a share.

*CORRECTION: The post earlier said 1 million shares instead of 11 million shares. I apologize for the mistake.

By Terri Rupar  |  March 2, 2009; 11:42 AM ET  | Category:  Economy Watch , Finance
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