Recession Hits American Capital
Investment Firm Loses $547 Million in Second Quarter
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Thursday, August 6, 2009
Bethesda-based American Capital on Wednesday posted a loss of $547 million for the second quarter, a reflection of how the recession continues to weigh on financial firms that invest in small and mid-size businesses.
American Capital's list of companies in which it has lent money struggled to pay back those investments, helping curb the company's performance. The company's total operating income dropped to $140 million for the quarter, down 47 percent from a year earlier.
"Basically, [American Capital] made investments in XYZ manufacturer and they are not paying their loans to American Capital," said Troy Ward, a senior analyst at Stifel Nicolaus. "A high number of portfolio companies are not paying their interest payments."
The company's second-quarter loss was $2.52 per share compared with a $70 million loss (34 cents per share) for the same quarter a year ago.
American Capital, which has been a key financial player in the Washington region for decades, is getting hammered on other fronts. It remains in default on $2.3 billion in debt, which the company is trying to renegotiate.
American Capital reported losses on investments of $308 million.
The company has reduced its workforce by 44 percent since March 2008. Its auditors earlier this year issued a going-concern opinion accompanying American Capital's financial statements. A going-concern opinion means a firm is danger of not continuing as a business.
The company said it reduced debt by $59 million during the quarter.
"While we believe the broader economy has begun to recover in the second half of 2009, American Capital continues to face challenges," Chairman and chief executive Malon Wilkus said in a statement. "We remain focused on resolving the defaults with each of our unsecured creditor groups; providing operational, managerial and financial support to our portfolio companies; and improving operational efficiencies."
Wells Fargo analyst Jim Shanahan called the second-quarter results "very weak and well below our expectations," in a research note Wednesday morning.
American Capital stock closed at $3.02 on Wednesday, down 16.3 percent.
Business development firms such as American and its District-based rival Allied Capital have seen their investment portfolios drop and have had difficulty raising capital due to the financial crisis.
Allied Capital will report second-quarter earnings Monday.
