American Capital, Ltd. announced the amendment of a $600 million senior secured term loan credit facility, which includes $450 million in loans outstanding as of Aug 23. JP Morgan Securities, LLC – a unit of JPMorgan Chase & Co. (JPM - Free Report) – and BMO Capital Markets Corp., the investment banking subsidiary of Bank of Montreal (BMO - Free Report) acted as joint lead arrangers and book runners for the deal.
The amendment considerably lowered the company’s borrowing expenses. Further, it modified the company’s credit agreement by lowering the interest rate from LIBOR plus 4.25% to LIBOR plus 3.00% and the LIBOR floor from 1.25% to 1.00%.
Additionally, the amendment reduced the scheduled amortization to $4.5 million annually, from $150 million. It also eliminated the use of surplus cash flow to pay off outstanding debt in cases where American Capital’s borrowing base coverage was more than 150%. The amendment also raised the advance rates for security, during calculation of the borrowing base.
We believe the amendment of the credit facility will lead to increase in the company’s capital availability and will also reduce interest costs, thereby enabling American Capital to make opportunistic investments.
American Capital was significantly impacted by the global financial crisis, which limited the company’s 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.
However, we believe that the gradual economic recovery and an improvement in interest rates will benefit the company in the upcoming quarters.
American Capital currently carries a Zacks Rank #5 (Strong Sell). A better performing stock in the same industry is Hercules Technology Growth Capital, Inc. (HTGC - Free Report) , which has a Zacks Rank #2 (Buy).