American Capital, among the most active private equity investors in recent years, sought to ease investors' fears of a Chapter 11 filing and portfolio company fire sales during the company’s first quarter earnings call today.
President Malon Wilkus confirmed that his firm is in default on $2.3 billion of unsecured debt, but added he is confident American Capital will be able to reach an agreement with its creditors. Even if American Capital had to seek protection under a Chapter 11 bankruptcy filing – an outside possibility – Wilkus said he was confident the firm would be able to protect shareholder value, citing the firm's high book value and the fact that it is currently covering its interest payments.
“As you know we have about $2.6 billion of GAAP net worth, we believe on a realisable basis it's about $1.9 billion higher than that,” Wilkus said. “As long as we have that positive book value, we believe we can protect the value for our shareholders even if we we're having to seek protection under Chapter 11. A lot of it has to do with the fact that our creditors are unsecured. If they were secured it would be much more difficult for me to come to that same conclusion.”
American Capital has hired Miller Buckfire to advise it on the restructuring process. Wilkus said negotiations with its creditors could be worked out in the next few months, but it could also take much longer given the number of parties involved and the complexity of the discussions.
Wilkus sought to reassure investors American Capital will not sell portfolio companies at a discount to resolve its “defaulted situation”.
“There has been tremendous speculation as to whether or not we will somehow have to sell our assets at discount to resolve our current defaulted situation,” he said. “I can tell you that I don't believe that is the desire or interest of our creditors, and I certainly know that it isn't in the interest of our shareholders to do that. We have looked at our defaulted situation as carefully as we can and we don't believe that is in our future.”
The firm had pulled “half a dozen” companies off the market because potential buyers were seeking a discount, and doesn't intend to sell them until American Capital can “reap proper rewards for our investors”.
The firm also said at its next shareholder meeting it will seek approval for up to four reverse stock splits, but will only use the option if it is necessary to keep the stock's price from falling below $1 per share on NASDAQ, which would violate the exchange's listing requirements.