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ACAS Offers Mezzanine Financing

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Yesterday, American Capital Ltd. announced its plan of providing support to the merger of Survey Sampling International and Opinionology Inc. through financing. The company strategizes to provide $50 million of Senior Subordinated Note financing for the deal.

The new company will be named as Survey Sampling International after the merger. Since December 2006, ACAS has been supporting Opinionology Inc. with the finance. The company provided $34 million Second Lien Term Loan as part of the acquisition financing for Sterling Investment Partners.

New Survey Sampling International provides sampling, data collection and data analytic solutions for survey research globally. Through various means including internet, telephone, mobile/wireless, SSI communicates with respondents in 72 countries. Other value-added services include programming and hosting, questionnaire design session, online custom reporting and data processing.

ACAS is a publicly traded private equity firm and global asset manager. The company directly and through its asset management business, initiates, underwrites and manages investments in middle market private equity, leveraged finance, real estate and structured products.

ACAS has the capability of providing flexible financing solutions with a variety of senior debt and uni-tranche to mezzanine and equity co-investments. Further, ACAS provides multi-currency funding with underwriting platform globally and facilitating growth of portfolio companies. All these benefits of ACAS urges private equity clients to consider it as an investment partner, which in turn, helps in the growth of the company.

Earnings Recap

ACAS’s second-quarter 2011 operating income of 20 cents per share was in line with the Zacks Consensus Estimate. However, results outpaced the prior-year quarter’s earnings of 9 cents per share. The favorable outcome was due to a drop in operating expenses, though partially offset by a decline in interest and dividend income in the reported quarter.

ACAS’s asset coverage ratio increased to 376% from 336% in the prior quarter. The company repaid an additional $100 million in debt, strengthening its balance sheet.

ACAS’s successful restructuring of debt provided it with sufficient operating flexibility. Moreover, the company also continues to derisk its balance sheet through a number of initiatives including repayment of debt. However, we believe limited accessibility to capital and increased funding costs have weakened the company’s strategic position in its sector.

The resumption of dividend payments is not expected in the near term, given projections for capital losses. Moreover, the improved credit quality of the portfolio is expected to continue along with the economic recovery.

American Capital currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock. Major competitor of ACAS, Ares Capital Corporation (ARCC - Free Report) also retains Zacks #3 Rank.

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