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EX-99.1 - EX-99.1 - AMERICAN CAPITAL, LTDd596672dex991.htm
8-K - FORM 8-K - AMERICAN CAPITAL, LTDd596672d8k.htm

Exhibit 99.2

The following table shows the portfolio composition of our private finance investments by industry grouping at fair value as a percentage of total investments as of June 30, 2013.

 

Fair Value    June 30, 2013  

 

 

Life Sciences Tools and Services

     8.3%   

Electrical Equipment

     7.1%   

Health Care Providers and Services

     7.1%   

Pharmaceuticals

     6.5%   

Hotels, Restaurants and Leisure

     6.2%   

Health Care Equipment and Supplies

     6.2%   

Commercial Services and Supplies

     6.1%   

Professional Services

     5.9%   

Construction and Engineering

     5.6%   

Internet and Catalog Retail

     5.2%   

Electronic Equipment, Instruments and Components

     3.1%   

Computers and Peripherals

     2.8%   

Building Products

     2.7%   

Food Products

     2.5%   

Diversified Financial Services

     2.1%   

Oil, Gas and Consumable Fuels

     2.1%   

Auto Components

     2.0%   

Energy Equipment and Services

     2.0%   

IT Services

     1.9%   

Personal Products

     1.7%   

Real Estate and Real Estate Investment Trusts

     1.6%   

Diversified Consumer Services

     1.6%   

Other

     9.7%   
  

 

 

 

Total

     100.0%   

 

 

 

 

The following table shows the dividend and fee income the Company receives from ACAM:

 

      For the years ended
December 31,
     Twelve months ended
June 30,
 
     2010      2011      2012      2013  

 

 
(dollars in millions)                         (unaudited)  

Dividends and fee income

   $ 16.0       $ 50.8       $ 102.7       $ 123.2   

Growth over prior period

        218%         102%         20%   

 

 

 

 

 

1


Below is an overview of certain information with respect to ACAM’s funds under management as of June 30, 2013:

 

      European
Capital
  AGNC   MTGE   ACE I    ACE II   

ACAS

CLO

2007-1

 

ACAS

CLO

2012-1

 

Fund type

   Private
Equity Fund
  Publicly
Traded REIT —

NASDAQ
(AGNC)

  Publicly
Traded REIT—
NASDAQ

(MTGE)

  Private
Equity
Fund
   Private
Equity

Fund

   CLO   CLO
                

Established

   2005   2008   2011   2006    2007    2006   2012

Assets under management

   $1.6

billion(3)

  $98.7

billion

  $11.7

billion

  $0.6
billion
   $0.3
billion
   $0.4

billion(3)

  $0.4

billion(3)

Fee base

   N/A   $11.7

billion

  $1.3

billion

  $0.5
billion
   $0.3
billion
   $0.4

billion(3)

  $0.4

billion(3)

Management fee

   N/A   1.25%   1.50%   2.00%    2.00%    0.68%   0.42%

Incentive fee(1)

   N/A   N/A   N/A   Up to
30%
   Up to
35%
   20%   20%

LTM management fees paid to ACAM(2)

   N/A   $133 million   $15 million   $6
million
   $4
million
   $3
million
  $1
million

Investment types

   Senior and
Mezzanine
Debt, Equity,
Structured
Products
  Agency
Securities
  Mortgage
Investments
  Equity    Equity    Senior

Debt

  Senior

Debt

Capital type

   Permanent   Permanent   Permanent   Finite
Life
   Finite
Life
   Finite

Life

  Finite

Life

 

 

(1)   Subject to performance targets established in the applicable management agreements.

 

(2)   Excludes incentive fees.

 

(3)   As of December 31, 2012.

 

 

 

2


The following table shows the portfolio composition of European Capital by industry grouping at fair value as a percentage of total investments as of December 31, 2012.

 

Fair Value    December 31, 2012  

 

 

Household Products

     15%   

Food Products

     13%   

Software

     8%   

Electronic Equipment & Instruments

     8%   

Machinery

     7%   

Textiles, Apparel & Luxury

     7%   

Commercial Services & Supplies

     6%   

Building Products

     5%   

Pharmaceuticals

     5%   

Specialty Retail

     4%   

Oil, Gas & Consumable Fuels

     4%   

Diversified Financial Services

     3%   

Household Durables

     3%   

Energy Equipment & Services

     3%   

Health Care Providers & Services

     3%   

Auto Components

     2%   

Hotels, Restaurants & Leisure

     1%   

Other

     3%   
  

 

 

 

Total

     100.0%   

 

 

 

 

 

3


Our total cash flow from Structured Products for the last twelve months ended June 30, 2013 was $99 million consisting of (i) cash proceeds of $26 million from the realizations of Structured Products and (ii) interest income of $73 million. Our effective yield on Structured Products for the twelve months ended June 30, 2013 was 32% at fair value.

 

 

Our third-party asset management business, ACAM, has over $113 billion of total assets under management (including levered assets) and $15 billion in fee earning assets across six private and two public funds as of June 30, 2013. From January 1, 2010 through June 30, 2013, we have grown our fee earning assets under management at a compound annual rate of 79%, including 36% over the twelve months ended June 30, 2013. As of June 30, 2013, our two public funds with permanent capital (non-redeemable) accounted for 87% of our fee earning assets under management. Over the twelve months ended June 30, 2013, ACAM generated gross revenue of $222 million and distributed $123 million to us in the form of fees and dividends, comprising 20.6% of our total revenue. For the quarter ended June 30, 2013, approximately 26% of our total revenue was derived from ACAM. The following table sets forth ACAM revenue as a percent of total revenue:

 

      For the Years ended December 31,      For the
Six months
ended June 30,
     Twelve Months
ended June 30,
 
(dollars in millions)    2009      2010      2011      2012      2012      2013      2013  

 

 

ACAM revenue

   $ 26       $ 16       $ 51       $ 103       $ 46       $ 66       $ 123   

% of total revenue

     3.7%         2.7%         8.6%         15.9%         14.7%         25.1%         20.6%   

Total revenue

   $ 697       $ 600       $ 591       $ 646       $ 312       $ 263       $ 597   

 

 

From January 1, 2010 to June 30, 2013, we have reduced our outstanding debt by $3.5 billion and our debt-to-equity ratio from 1.8x to 0.1x. Over the same time period, our total assets remained stable, decreasing from $6.7 billion to $6.3 billion while generating cumulative earnings of $3.5 billion. As of June 30, 2013, the asset coverage of our total debt was 10.1x. The following table sets forth historical asset and debt balances, and debt to equity ratios:

 

      As of December 31,      For the
six months
ended June 30,
 
(dollars in millions)    2009      2010      2011      2012      2013  

 

  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 6,672       $ 6,084       $ 5,961       $ 6,319       $ 6,260   

Debt outstanding

   $ 4,142       $ 2,259       $ 1,251       $ 775       $ 614   

Equity

   $ 2,329       $ 3,668       $ 4,563       $ 5,429       $ 5,579   

Debt-to-equity

     1.8x         0.6x         0.3x         0.1x         0.1x   

Assets / debt outstanding

     1.6x         2.7x         4.8x         8.2x         10.2x   

 

 

Additionally, our coverage ratios have improved over time. The following table sets forth historical balances and ratios with respect to our interest coverage ratio:

 

      For the Years ended December 31,     Six months
ended
    Twelve
months ended
June 30, 2013
 
(dollars in millions)    2009     2010     2011     2012     2012     2013    

 

 
                             (unaudited)     (unaudited)  

Net operating income before income taxes

   $ 115      $ 204      $ 303      $ 383      $ 178      $ 133      $ 338   

Operating Cash Adjustments

              

Accrued PIK

     (97     (151     (196     (228     (123     (82     (187

Interest expense

     256        177        90        59        32        22        49   

Depreciation

     18        14        7        7        3        3        7   

Stock-based compensation

     86        42        45        44        24        15        35   
  

 

 

 

Adjusted NOI(1)

   $ 378      $ 286      $ 249      $ 265      $ 114      $ 91      $ 242   
  

 

 

 

Payment of accrued PIK

     48        77        108        242        107        67        202   
  

 

 

 

Adjusted NOI plus payment of accrued PIK(1)

   $ 426      $ 363      $ 357      $ 507      $ 221      $ 158      $ 444   
  

 

 

 

Interest expense

   $ 256      $ 177      $ 90      $ 59      $ 32      $ 22      $ 49   
  

 

 

 

Interest coverage (Adjusted NOI) before interest expense(1)

     1.5x        1.6x        2.8x        4.5x        3.6x        4.1x        4.9x   

Interest coverage (Adjusted NOI plus payment of accrued PIK)(1)

     1.7x        2.1x        4.0x        8.6x        6.9x        7.2x        9.1x   

 

 

 

(1)   Adjusted NOI is defined as net operating income before income taxes excluding accrued PIK interest expense, stock-based compensation and depreciation.

 

4


 

We have generated liquidity from portfolio sales and debt repayments through the recent economic downturn. Despite low industry-wide mergers and acquisitions activity, we were able to sell portfolio assets for an average of 1.3% in excess of the prior quarter’s fair value for exits from July 1, 2008 through June 30, 2013. From January 1, 2009 through June 30, 2013, we realized $5.4 billion from our portfolio. The following table sets forth balances with respect to our portfolio realizations:

 

      For the Years ended
December 31,
     Six months
ended  June 30,
     Twelve
months ended
June 30, 2013
 
(in millions)    2009      2010      2011      2012      2012      2013     

 

 
                                 (unaudited)      (unaudited)  

Principal prepayments / syndications

   $ 726       $ 914       $ 526       $ 941       $ 511       $  267       $ 696   

PIK / OID collections

     48         77         108         242         107         67         202   

Principal amortization

     46         36         38         41         21         19         40   

Sale of equity investments

     323         266         394         274         89         78         263   
  

 

 

 

Total portfolio realizations

   $ 1,143       $ 1,293       $ 1,066       $ 1,498       $ 728       $ 431       $ 1,201   

 

 

Additionally, our liquidity position is demonstrated by $1.0 billion of cash flows net of contractual obligations for the last twelve months ended June 30, 2013. The following table sets forth selected summary financial data with respect to our cash flow sources and contractual uses:

 

      For the Years ended
December 31,
     Six months
ended
     Twelve
months ended
June 30, 2013
 
(in millions)    2009      2010      2011      2012      2012      2013     

 

 

Selected sources:

                    

Net cash provided by operating activities(1)

   $ 165       $ 87       $ 174       $ 164       $ 85       $ 86       $ 165   

Liquidity - equity assets

     323         266         394         274         89         78         263   

Liquidity - debt assets

     772         950         564         982         532         286         736   

Payment of accrued PIK

     48         77         108         242         107         67         202   

Proceeds from issuance of common stock

     —           298         11         36         10         16         42   
  

 

 

 

Subtotal selected sources

   $ 1,308       $ 1,678       $ 1,251       $ 1,698       $ 823       $ 533       $ 1,408   

Selected contractual outflows:

                    

Swap payments

     62         75         50         87         67         19         39   

BLT debt repayment

     288         544         583         487         309         162         340   

Deferred financing costs

     —           26         —           16         —           —           16   
  

 

 

 

Subtotal contractual outflows

   $ 350       $ 645       $ 633       $ 590       $ 376       $ 181       $ 395   
  

 

 

 

Net cash sources

   $ 958       $ 1,033       $ 618       $ 1,108       $ 447       $ 352       $ 1,013   

 

 

 

(1)   Includes contractual interest payments.

 

5


The following table sets forth our PIK balance, PIK collections and PIK collections as a percent of prior PIK balance:

 

      For the Years ended December 31  
(dollars in millions)    2009      2010      2011      2012  

 

 

PIK balance

   $ 376       $ 439       $ 515       $ 489   

PIK collections

   $ 48       $ 77       $ 108       $ 242   

PIK collections as % of prior PIK balance

     15%         20%         25%         47%   

 

 

European Capital has also represented a meaningful source of cash flows. As of December 31, 2012, European Capital had $330 million of total secured debt outstanding with $108 million in realizations for the year ended December 31, 2012. Once this outstanding secured debt is retired, we expect European Capital will have the ability to distribute portfolio realizations to us. The following table sets for historical balances related to European Capital’s deleveraging and realizations:

 

        As of and for the Years ended
December 31
 
(in millions)      2009        2010        2011        2012  

 

 

ECAS secured debt outstanding

     $ 814         $ 469         $ 352         $ 330   

Realizations

     $ 120         $ 368         $ 252         $ 108   

 

 

 

6


 

Non-GAAP financial measures

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we have presented consolidated adjusted operating cash flow before fixed charges, adjusted net operating income (“adjusted NOI”) and net cash sources in this exhibit. We define adjusted operating cash flow before fixed charges as net cash provided by operating activities plus payment of accrued payment-in kind (“PIK”) notes and divided and accreted original issue discounts. We define adjusted NOI as net operating income before income taxes excluding accrued PIK interest expense, stock-based compensation and depreciation. Management believes that consolidated adjusted operating cash flow before fixed charges will be an important measure by which it measures American Capital’s business going forward as it is component of the financial covenants included in the notes offered hereby. Adjusted NOI and the ratios derived therefrom are important measures by which management measures the business because such metrics provide an approximation of cash net operating income generated in the period. Net cash sources is an important measure by which the Company measures liquidity generation. We define adjusted operating cash flow before fixed charges, adjusted NOI and net cash sources and provide a reconciliation to the most comparable GAAP measure, respectively, herein. Adjusted operating cash flow before fixed charges, adjusted NOI and net cash sources are not measures of financial performance under GAAP. Adjusted operating cash flow before fixed charges, adjusted NOI and net cash sources have limitations as analytical tools and you should not consider these non-GAAP financial metrics in isolation or as a substitute for analysis of our results as reported under GAAP.

 

7