S&P Cuts American Capital

Standard and Poor’s Rating Services (S&P) recently downgraded American Capital’s (ACAS - Analyst Report) long-term counterparty credit rating to "B-" from "BB-". The outlook is negative. S&P expressed concern about the rapid decline in the company’s realized earnings, debts and the deteriorating performance of its portfolio companies.

American Capital has been significantly hurt by the financial downturn. It reported a loss of $2.52 per share in the second quarter compared with a loss of 34 cents in the year-ago period. Realized loss per share was $1.41 in the quarter compared with a gain of 95 cents a year earlier. It also defaulted on $2.3 billion of debt repayments.

On an operating basis, American Capital earned 9 cents per share in the second quarter compared to the Zacks Consensus Estimate of 20 cents.

According to S&P, American Capital’s balance sheet will take time to recover after the severe impact. During this period, the company will also face difficulties in negotiating with lenders.

However, American Capital recently disclosed in a filing with the Securities Exchange Commission that it may offer up to $1.5 billion aggregate of common stock, preferred stock and debt in one or more offerings from time to time. Net proceeds will be used for general corporate purposes that include debt repayment, acquisitions and other general corporate purposes.

American Capital provides finance to small and mid-sized businesses and competes with companies such as MCG Capital Corp. (MCGC - Snapshot Report), CapitalSource Inc. (CSE - Snapshot Report) and Allied Capital Corp. (ALD). It has been severely hurt by the draining value of company portfolios in which it invests. However, the recent capital-bolstering initiatives coupled with other cost-containment measures should provide some relief to the company.

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