Total Q1 2002 New Investments $109.1MM, 106.6% Over Q1 2001

  Total Q1 2002 New Investments $109.1MM, 106.6% Over Q1 2001

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  Second Issuance of Asset-Backed Securities

In March we issued investment grade securities backed by $196.4MM of senior and subordinated business loans. The $196.4MM of senior and subordinated business loans were contributed to ACAS Business Loan Trust 2002-1, a wholly owned, limited purpose indirect subsidiary of American Capital. Wachovia Securities acted as the structuring and placement agent. Proceeds were used to reduce the amount borrowed under American Capital's $225MM revolving credit facility to $50MM. American Capital has raised over $1.2BN in debt and equity capital since its August 1997 IPO.

The private placement is American Capital's second term securitization. The first, which has experienced zero charge-offs, was a December 2000 issuance of $153.9MM of investment grade securities. Together with our previous securitization, American Capital now has $245MM in long--term debt.

The note offering to investors consists of a $98.2MM A class and a $49.1MM B class. We are treating the transaction as a financing on its balance sheet. The A and B class notes were rated by the rating agencies as follows:

  $36MM Buyout of Robotics Company

In March we invested $36MM in the buyout of PaR Systems Inc. PaR is a leader in the design, assembly, installation and service of large-scale, high-precision robotic systems in a variety of industries, including aerospace, marine, high-hazard remediation, commercial nuclear power, research and general manufacturing. We acquired PaR from Mass Mutual Insurance Company and Edson Partners, funding a revolving credit facility, senior term loan, senior and junior subordinated notes with warrants and common equity. PaR management made a significant cash investment in the buyout. Pictured here is the Vector, a water jet cutting system used to cut a variety of materials from light density foams to plastics and, with the addition of garnet abrasive, steel to stone.

We expect to be refinanced out of the senior debt. 

Click here for more information about PaR.
Contact David Ehrenfest Steinglass, Principal.

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$29MM Acquisition of Specialty Contract Chemical Manufacturer

Also in March, we invested $29MM to fund the acquisition of Hickson DanChem Inc., a specialty contract chemical manufacturer, from Arch Chemicals (NYSE: ARJ). The company is now called DanChem Technologies Inc. Arch sold DanChem subsequent to its purchase and integration of DanChem's parent, Hickson International. American Capital funded a senior credit facility, subordinated notes with warrants, and common equity. DanChem management made a significant cash investment in the buyout.

Since closing, we have been refinanced out of the revolving credit facility by La Salle.

Click here to learn more about DanChem.
Contact David Ehrenfest Steinglass, Principal.

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  $22MM in Medical Education Company

In January, we invested $22MM to acquire an interest in Network for Medical Communication and Research LLC, a provider of specialized medical educational programs, research, and content for physicians and other medical personnel. American Capital's investment is in senior debt and senior and junior subordinated debt with warrants, and results in 50.1% ownership of the fully diluted equity. NMCR founders and management participated in the transaction in the form of an investment in the junior subordinated debt, the retention of a subordinated seller note, and the continued ownership of the balance of the fully diluted equity.

Based in Atlanta, GA, NMCR was founded in order to deliver educational content to doctors in a concise format, as well as create a forum for doctors to discuss and debate cancer treatment topics and issues for the purpose of improving patient care and enhancing the effectiveness of pharmaceutical research and development activities.

Click here for more information about NMCR.
Contact Darin Winn, Principal and Managing Director.

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  American Capital One-Stop Transactions

In a very difficult financing environment, American Capital can provide senior debt, sub debt and equity, acting as sole source of capital. Our transactions also permit portfolio company management to acquire a significant equity stake. Listed below are the investments where American Capital was the sole source provider of multiple tiers of capital.

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  $8.5MM in Organic Poultry Processor

In February, we invested $8.5MM in senior subordinated notes to recapitalize Petaluma Poultry Processors Inc. as part of an acquisition financing. Petaluma management participated in the transaction in the form of preferred equity. The senior lender was U.S. Bank and the equity group was led by Vail, Colo.-based Booth Creek Management Corp. Petaluma is an integrated producer, distributor and marketer of organic and natural fresh chicken meat. It was the first company to sell chicken with the U.S. Department of Agriculture certification for organic poultry, trademarked as Rosie the Organic Chicken.

Click here for more information about Petaluma.
Contact John Thornton, Principal.

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  $3.6MM in Confluence Holdings Corporation

We invested $3.6MM in portfolio company Confluence Holdings, acquiring a controlling interest and funding incremental working capital necessary for new product introductions and associated working capital needs. We originally invested $18MM in Confluence in 1998 to fund the consolidation of the businesses of Wilderness Systems, Inc., the third largest U.S. manufacturer of kayaks, and Mad River Canoe, Inc., the second largest U.S. manufacturer of canoes. Wilderness Systems pioneered the development of the touring and recreational segments of the kayak market. Mad River Canoe's award-winning designs and materials serve the touring, tripping and whitewater market segments. We now have $16.3MM invested in Confluence.

Click here for more information about Confluence.
Contact Gordon O'Brien, Principal and Managing Director.

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  $2.7MM in Chance Coach, Inc.

We invested an $2.7MM in portfolio company Chance Coach to fund its working capital needs. Employee-owned corporation Chance is a leading manufacturer of transportation products, including the American Heritage Streetcar, Opus Low-Floor Bus, RT-52 Heavy-Duty Transit Coach and Articulated Modular Transit Vehicle (AMTV). We originally invested in Chance in 1998. Our total investment now stands at $16MM.

Click here for more information about Chance Coach.
Contact David Ehrenfest Steinglass, Principal.

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  $2MM in Omnova Solutions, Inc.

We invested $2MM in Omnova as part of the final funding under a debt purchase agreement we entered into last year, funding the continued purchase of inventory from Decorative Surfaces International, an American Capital portfolio company. We made approximately $10MM in total subordinated debt commitments to Omnova to support its acquisition of certain business lines and assets of DSI. American Capital's total investment in Omnova is now approximately $8.2MM.

Click here for more information about DSI.
Contact Gordon O'Brien, Principal and Managing Director.

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  $500,000 in Cycle Gear, Inc.

We provided $500,000 of subordinated debt to our portfolio company Cycle Gear. This follow-on investment was part of our original $7.5MM commitment to fund the Company's retail growth strategy. Despite the difficult economic and retail environment, Cycle Gear's financial performance has continued to exceed our expectations, as the Company posted double-digit revenue growth during most of the past twelve months compared to a year earlier. The Company opened or acquired six new retail stores during FYE 9/30/01, and is on track to open eight new stores this fiscal year. We originally invested in Cycle Gear in 1998. Our total investment in is now $8.3MM.

Click here for more information about Cycle Gear.
Contact Roland Cline, Principal and Managing Director.

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  American Capital Managing Director Wins ACG Award

Jeri J. Harman, Principal and Managing Director in American Capital's Los Angeles office, earned the prestigious Meritorious Service Award from the Association for Corporate Growth International (ACGI) at the group's international convention in Orlando, FL April 11.

Currently a Director and Vice President for ACGI, Harman was cited for her "tireless effort to bring focus to the international operation and revitalize the Los Angeles chapter," one of 39 chapters in the U.S. As President of the local chapter the last two years, Harman reconstituted the leadership, revamped programming and oversaw membership growth that surpassed any other ACG chapter of comparable size worldwide. 

Contact Jeri in our Los Angeles office at (818) 676-1222.

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  American Capital Regional Diversification of Investments

*As of 12/31/01

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This newsletter contains forward-looking statements. The statements regarding expected results of American Capital Strategies are subject to various factors and uncertainties, including the uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional or national economic conditions, or changes in the conditions of the industries in which American Capital has made investments.

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