Fitch to Rate American Capital’s Secured Facilities BB/RR1
Fitch Ratings said it expects to rate American Capital’s (ACAS) senior secured revolver and $600 million term loan BB/RR1. Proceeds from the revolver and term loan will be used to repay all senior secured and unsecured debt outstanding and for working capital and general corporate purposes.
Fitch said the expected ratings reflect the solid asset coverage on the term loan and revolver as a result of the first lien on ACAS’s assets pledged to each facility and the joint first lien on the stock of portfolio company, American Capital. The ratings also reflect ACAS’s improved core operating performance, reduced leverage, decline in non-accrual levels and appropriate leverage levels relative to the company’s significant equity investment exposure.
On June 26, 2012, Fitch revised the Rating Outlook on ACAS’s long-term IDR to Positive from Stable, revised the Recovery Ratings for ACAS’s secured debt to RR1 from RR2 and upgraded the debt and recovery ratings for its unsecured debt to B+/RR1 from B-/RR6 to reflect improved recovery prospects for creditors given an increase in available collateral, reduced balance sheet leverage and shortened risk horizon to maturity.
Rating constraints include the potential impact of capital markets volatility on leverage, given the need to fair value the portfolio each quarter, which can generate material unrealized depreciation on ACAS’s outsized equity portfolio, dependence on capital markets to fund portfolio growth, and relatively higher payment-in-kind income levels versus industry peers.
Bethesda, MD-based ACAS, an internally managed business development company (BDC), is the largest BDC by market capitalization and asset size, with $6.4 billion of assets as of March 31, 2012.
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