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Nearly $2 billion invested, $342 million in dividends paid since 1997 IPO.
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Vol. 4 No. 3
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(800) 248-9340
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August 2003
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FIRST HALF 2003 NEW INVESTMENTS TOTAL $382MM,
UP 53% FROM FIRST HALF 2002
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Table of Contents
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53% Growth in New Investments, First Half 2003
American Capital Declares Dividend of $0.69 per Share; 5% Increase Over Q3 2002
American Capital Issues $308 Million of Asset Based Backed Securities
American Capital and subsidiaries have raised $258 million in equity and $239 million debt in 2003 for a total of $497 million year-to-date and approximately $1.7 billion since our 1997 IPO.
Chart: American Capital, Funds Raised, IPO to Date
New Portfolio Investments
$33 Million in Roadrunner Freight, Transportation Services Company
$42 Million in Escort, Niche Designer, Manufacturer and Distributor of Automotive Consumer
Electronic Products
$15 Million in CIVCO, Leading Global Designer, Manufacturer and Marketer of Ultrasound
Imaging Accessories
$23 Million in Corporate Benefit Services of America, Inc., Leading Full-service Third Party
Manager and Administrator of Employee Healthcare Benefit Plans
$23 Million in Riddell, Leading Designer, Manufacturer and Licensor of Branded Sporting
Goods
$10 Million in Money Mailer, Leading Shared Mail Direct Marketer
$15 Million in Bumble Bee Seafoods, Leading Global Producer and Marketer of Canned Tuna
and Other Seafood
$7.5 Million in Acquisition of Midco for Portfolio Company MBT International
Portfolio News
Add-on Investment for Acquisition of Pennfield and Hans' by BC Natural Foods, Inc.
Buyout and Recapitalization of The New Piper Aircraft Inc.
Four Exits in Q2, Q3 to date: $29.1 Million in Realized Gains, $57 Million Return of Capital
Fulton Bellows Files for Reorganization
Corporate News
New Principal in Chicago
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53% Growth in New Investments, First Half 2003
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American Capital New Investments, First Half 1998-2003
($MM)
Total Invested Since August 1997 IPO: nearly $2 Billion
New investments for the first half of 2003 were $382 million, a 53% increase over the same period in 2002.
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American Capital Declares Dividend of $0.69 per Share; 5% Increase Over Q3 2002
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In August, American Capital announced that the Board of Directors declared a third quarter 2003 dividend of $0.69 per share, payable on October 1, 2003 to record holders as of September 18, 2003. This dividend is a 5% increase over the third quarter 2003 regular dividend of $0.66 per share. American Capital has paid or declared a total of $12.37 in dividends since its August 1997 IPO, totaling $342 million.
For more information about American Capital's dividends click here.
As of July 31, 2003, American Capital shareholders have enjoyed a total return of 211% since the Company's IPO -- an annualized return of 21%, assuming reinvestment of dividends. American Capital has paid or declared a total of $12.37 per share in dividends since its August 1997 IPO at $15 per share.
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American Capital Issues $308 Million of Asset Backed Securities
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In May, ACAS Business Loan Trust 2003-1, a wholly owned affiliate of American Capital, issued $239 million of investment grade securities backed by $308 million of senior and subordinated business loans originated by American Capital. Wachovia Securities acted as the structuring and placement agent and initial purchaser of the securities. BB&T Capital Markets was co-manager.
American Capital and subsidiaries have raised $258 million in equity and $239 million debt in 2003, for a total of $497 million. The Company has raised approximately $1.7 billion in debt and equity capital since its August 1997 IPO. During this same period, American Capital invested nearly $2 billion in middle market companies.
The private placement is American Capital's fourth term securitization. The first was a December 2000 issuance of $154 million of asset backed securities. The second and third, in March and August 2002, were issuances of $196 million and $211 million of asset backed securities. None of the securitizations have experienced a charge-off or ratings downgrade and all are booked as debt on American Capital's balance sheet. Investments in 60 current American Capital portfolio companies, of 74 total at the time of the fourth securitization, are now financed, in part, through term securitizations.
The note offering to investors consists of $185 million Class A notes, $31 million Class B notes and $23 million Class C notes. The Class C notes consist of a $17 million tranche of floating rate notes and a $6 million tranche of fixed rate notes. American Capital retained $69 million of Class D notes. The A, B, and C notes were rated by three rating agencies as follows:
| Class Of Note |
Amount |
S&P |
Moody's |
Fitch |
| A |
$185 MM |
AAA |
Aaa |
AAA |
| B |
$31 MM |
AA |
Aa1 |
AA |
| C |
$23 MM |
A |
A1 |
A+ |
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The Class A notes were priced at LIBOR plus 55 basis points; the Class B notes were priced at LIBOR plus 120 basis points. The floating rate tranche of the Class C notes were priced at LIBOR plus 225 basis points, and the fixed rate tranche was priced at a 5.14%. The total borrowing cost, including interest rate swaps and fees, is 5.0%
American Capital has issued four term securitizations, making the Company by far the leading issuer of middle market collateralized loan obligations (CLOs). The improved structure of the most recent securitization is an indicator of both the performance of the assets in previous securitizations as well as the credit quality of the portfolio at the time of the securitization. For example, 70% of the fourth securitization is rated double A or triple A. In previous securitizations, no more than 50% was so rated. The rating agency review covers not only the securitized assets but also the underperforming assets in the portfolio, as well as assessing American Capital's abilities as loan servicer for the transactions. The total advance rate is 77.5%, compared to an advance rate of 75% in previous securitizations. The all-in-cost of 5.0% is the lowest borrowing cost to date and the investor market continues to grow for these CLO notes. The pool of noteholders has expanded from nine investors in the 2000 securitization to 39 today, with 11 new investors participating in this transaction.
For the complete press release click here.
American Capital
Funds Raised, IPO to Date
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| Term Debt |
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| December 2000 |
$ 115,400,000 |
| March 2002 |
$ 147,300,000 |
| August 2002 |
$ 157,900,000 |
| May 2003 |
$ 239,000,000 |
| TOTAL DEBT RAISED |
$ 659,600,000 |
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| Equity Offerings |
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| August 1997 |
$ 154,900,000 |
| September 1999 |
$ 95,285,000 |
| June 2000 |
$ 129,662,500 |
| November 2000 |
$ 67,533,750 |
| June 2001 |
$ 131,962,500 |
| September 2001 |
$ 49,500,000 |
| December 2001 |
$ 54,153,500 |
| July 2002 |
$ 76,850,000 |
| December 2002 |
$ 53,820,000 |
| January 2003 |
$ 107,266,250 |
| March 2003 |
$ 150,742,000 |
| TOTAL EQUITY RAISED |
$ 1,071,675,500 |
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| TOTAL CAPITAL RAISED |
$ 1,731,275,500 |
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$33 Million in Roadrunner Freight, Transportation Services Company
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In July, American Capital invested $33 million in the acquisition of Roadrunner Freight Systems Inc., a transportation services company based in Milwaukee, WI. American Capital's investment took the form of senior and junior subordinated debt with warrants and common equity. LaSalle Bank N.A. provided a revolving credit facility and senior term loan. Following the transaction, on a fully-diluted basis American Capital has 75% ownership while management retained 25% of the company.
Founded in 1984 in Milwaukee, WI, Roadrunner Freight Systems Inc. is an inter-regional freight services company that consolidates less-than-truckload shipments into full truckloads, minimizing the need for intermediate handling. The company operates a network of nine terminals in Milwaukee, Chicago, Dallas, Atlanta, Nashville, Charlotte, Los Angeles, Cincinnati and Cleveland, employs approximately 400 and has annual sales of over $125 million. Roadrunner's unique business model provides its diverse customer base among the fastest transit times and lowest claims ratios in the industry.
Click here for more information about Roadrunner Freight Systems Inc.
Contact Jon Isacson, Principal, or call (301) 951-6122.
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$42 Million in Escort, Niche Designer, Manufacturer and Distributor of Automotive Consumer Electronic Products
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In July, American Capital invested $42 million in the recapitalization of Escort Inc., a leading niche designer, manufacturer and distributor of automotive consumer electronic products. American Capital's investment took the form of a last out senior term loan, junior and senior subordinated debt with warrants and redeemable preferred equity. GE Capital Capital Funding, a unit of GE Commercial Finance, provided a senior term loan and Huntington National Bank provided a revolving credit facility. Escort's management and employees also invested in equity.
Founded in 1977, West Chester, OH-headquartered Escort Inc. is the leading designer, manufacturer and distributor of highway radar and laser detectors. An industry innovator in radar detection technology, Escort manufactures over 20 radar and laser related products and sells its high tech products domestically and internationally under the Escort, Passport, Solo, Bel, Express and Vector brand names. The company has over 200 employees operating in its two facilities in West Chester, OH and Mississauga, Ontario. Consumers purchase Escort products at leading retailers such as Best Buy, Circuit City, Sharper Image, Tweeter Etc., Car Toys and Ultimate Electronics.
Click here for more information about Escort Inc.
Contact Ken Jones, Principal, or call (610) 238-0210.
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$15 Million in CIVCO, Leading Global Designer, Manufacturer and Marketer of Ultrasound Imaging Accessories
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 In July, American Capital invested $15 million in CIVCO Holdings, a company formed by KRG Capital Partners LLC to take private Colorado MEDTech (Nasdaq: CMED), which through its subsidiary, CIVCO Medical Instruments Co., is the market-leading designer, manufacturer and marketer of leading edge disposable and consumable accessory technologies supporting the ultrasound imaging equipment manufactured by virtually all major ultrasound OEMs globally. American Capital's investment took the form of senior subordinated debt with warrants, redeemable preferred stock and common stock. Madison Capital Funding (an affiliate of New York Life Investment Management) and Merrill Lynch Capital provided a revolving credit facility and a senior term loan to help finance the acquisition.
Founded in 1981, Kalona, Iowa-headquartered CIVCO's primary product lines include equipment covers, imaged-guided biopsy systems, ultrasound supplies and imaging equipment positioning systems. CIVCO operates out of two facilities located in Kalona, IA and Sarasota, FL and employs over 120 people. Customers include General Electric Medical Systems, Philips Medical Systems, B-K Medical, Boston Scientific and Siemens Medical Systems, Inc.
Pictured here is an imaging equipment positioning system used during minimal invasive surgical procedures.
Click here for more information about CIVCO Holdings.
Contact Darin Winn, Principal and Managing Director or call (214) 273-6650.
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$23 Million in Corporate Benefit Services of America, Inc., Leading Full-Service Third Party Manager and Administrator of Employee Healthcare Benefit Plans
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In July, American Capital invested $23 million in Corporate Benefit Services of America, Inc., a leading full-service third party manager and administrator of employee healthcare benefit plans. American Capital's investment took the form of a last out Term C senior loan and senior subordinated debt with warrants and supported the buyout of CBSA by Churchill Equity and ESOP Capital Partners from Code Hennessy & Simmons LLC. CBSA management jointly invested in common equity.
Founded in 1971, Minneapolis, MN headquartered Corporate Benefit Services of America provides customized self-funded and fully-funded healthcare benefit plans and medical management services to small to mid-sized companies throughout the United States. The company's services include selling, designing and implementing custom healthcare benefit plans, processing claims, assisting in procuring stop loss reinsurance and managing the enrollment and payment processes. The company has regional offices in Minnesota, Florida, Colorado, Texas, Iowa and Idaho, over 500 highly specialized employees and recorded 2002 annual sales of approximately $45 million.
Click here for more information about Corporate Benefit Services of America, Inc.
Contact Jeri Harman, Principal and Managing Director or call (818) 676-1222.
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$23 Million in Riddell, Leading Designer, Manufacturer and Licensor of Branded Sporting Goods
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 In June, American Capital invested $23 million in Riddell Sports Group, Inc., a leading designer, manufacturer and licensor of branded sporting goods, reconditioning services and collectibles. American Capital's investment took the form of senior subordinated debt and equity and supported the acquisition of Riddell by Fenway Partners Inc. from Lincolnshire Management Inc. Wachovia Bank (NYSE: WB) led a revolving credit facility and senior term loan.
Riddell was the first to develop safety items such as the plastic helmet, chinstrap, carbon steel facemask, air impact system for shoulder pads and most recently, the Revolution helmet, pictured above. The Revolution helmet is the first helmet using a new technology, designed with the intent of reducing the risk of concussions. Other products include uniforms, shoulder pads and sports memorabilia. Riddell expects annual sales in excess of $100 million and has experienced sustained revenue growth over the last several years. Customers include all of the NFL teams and Division I colleges as well as many high school and youth leagues.
Click here for more information about Riddell.
Contact Brian Graff, Principal or call (212) 213-2009.
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$10 Million in Money Mailer, Leading Shared Mail Direct Marketer
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 In May, American Capital invested $10 million in Money Mailer Holdings, LLC, a leading shared mail direct marketing company serving local and national advertisers. American Capital's investment took the form of senior subordinated debt and common equity. American Capital's proceeds partially financed the purchase of Money Mailer by Roark Capital Group. Merrill Lynch provided a revolving credit facility and senior term loans.
Garden Grove, CA headquartered Money Mailer was founded in 1979 and has successfully grown to hold the second largest position in the shared direct mail advertising industry. Shared direct mail advertising combines advertisements usually containing discounts or coupons from multiple advertisers, both local and national, into a single mail envelope for residential distribution. Money Mailer mails over 120 million envelopes to more than 16 million residential homes, recording sales of over $60 million in 2002. The company employs approximately 280.
Click here for more information about Money Mailer.
Contact Robert Klein, Principal, or call (212) 213-2009.
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$15 Million in Bumble Bee Seafoods, Leading Global Producer and Marketer of Canned Tuna and Other Seafood
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 In May, American Capital invested $15 million in Bumble Bee Seafoods, Inc., a leading global producer and marketer of canned tuna and other seafood and the leader in the premium albacore tuna market. American Capital's investment took the form of senior subordinated debt with warrants and supported the acquisition of the assets and operations of Bumble Bee from ConAgra Foods, Inc. by management and affiliates of Centre Partners Management, LLC.
Bumble Bee, with world headquarters in San Diego, CA, has annual revenues of over $500 million and in addition to its leading position in the canned albacore tuna market, has established the second leading position in the U.S. market and leading positions in other major canned seafood markets such as salmon and specialty canned seafood. The company sells its broad range of products under the well-known brands Bumble Bee, Clover Leaf and Orleans.
Click here for more information about Bumble Bee.
Contact Jeri Harman, Principal and Managing Director or call (818) 676-1222.
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$7.5 Million in Acquisition of Midco for Portfolio Company MBT International
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 In May, American Capital invested a net of $7.5 million in the form of senior and junior subordinated debt with warrants in its portfolio company, MBT International, Inc. for the acquisition of Midwest Musical Instrument, Inc. (Midco). LaSalle Bank continues to provide a revolving credit facility to MBT.
American Capital first invested in MBT, headquartered in Charleston, SC, in July 1999.
MBT International was founded in 1979 and is one of the largest national distributors of musical instruments and accessories, operating out of three facilities in South Carolina, Nevada and Indiana. MBT's proprietary products include Hondo® and J.B. Player® guitars, RMS® PA systems and amplifiers and MBT lighting and sound products.
Founded in 1949, Midco, headquartered in Effingham, IL, is a major distributor of guitars, percussion products, electronic music equipment and a wide variety of music accessories. Originally a retail store, the company established its successful wholesale music operation in 1965, and has evolved into one of the nation's top musical instruments and accessories distributors. Through its three facilities in Illinois, Texas and Virginia, Midco distributes a variety of musical instruments and accessories both under exclusive and non-exclusive arrangements, as well as proprietary brands, including J Reynolds® guitars and Percussion Plus® drums and drum accessories, that are manufactured by third parties in the Far East.
The combined companies have over 150 employees and their customers include national, regional and local distributors such as The Guitar Center, The Musicland Group Inc., Hermes Trading Co. Inc., Sam Ash Music Corp., Brook Mays Music Co. and George's Music Group.
Click here for more information about MBT and Midco.
Contact John Thornton, Principal or call (415) 591-0120.
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Add-on Investment for Acquisition of Pennfield and Hans' by BC Natural Foods, Inc.
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In August, American Capital invested an additional $9 million in its portfolio company BC Natural Foods LLC, formerly Petaluma Holdings LLC, to support the acquisition of the Poultry Meat Division of Pennfield Corp. and Penn Valley Farms/Hans' Sausage. American Capital's additional investment took the form of senior subordinated debt, complementing American Capital's previous senior debt and subordinated debt investments. Booth Creek Management Corp. is the majority owner and equity sponsor of BC Natural Foods LLC. The company's existing senior lender provided an expanded revolving credit facility and senior term loan to support the acquisitions.
American Capital first invested in BC Natural Foods, formerly Petaluma Holdings, in January 2002. Petaluma was the first company to sell chicken with the U.S. Department of Agriculture certification for organic poultry. In November 2002, American Capital supported the company's expansion into other organic meats markets with its acquisition of Coleman Natural Products and B3R Country Meats. Both companies are natural beef processors and Coleman was the first USDA certified natural beef processor.
Click here for more information about the BC Natural Foods.
Contact John Thornton, Principal or call (415) 591-0120.
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Buyout and Recapitalization of The New Piper Aircraft Inc.
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In July, American Capital completed the buyout and recapitalization of portfolio company The New Piper Aircraft Inc. by purchasing $57 million of Piper's senior debt for $34 million and providing a revolving loan facility. In addition, American Capital exchanged $22 million of the purchased senior debt for common equity in Piper. American Capital's original $20 million investment in subordinated debt is now a senior facility. American Capital now owns 94% of Piper's voting equity.
Affiliates of Exeter Capital Partners, a private equity firm and long time investor in Piper, made an additional common equity investment of approximately $1 million for 6% of the common equity as part of the recapitalization.
American Capital first invested in Piper, headquartered in Vero Beach, FL, in May 1998. Over 60 years in operation, Piper employs nearly 700.
Click here for more information about Piper.
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Four Exits in Q2, Q3 to date: $29.1 Million in Realized Gains, $57 Million Return of Capital
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American Capital has announced that it received $57 million exiting three portfolio companies, realizing $29.1 million in realized gains. None of these exits involved financing from American Capital. The sale proceeds recognized by American Capital from these four exits exceeded the prior quarters 2003 valuation of these investments by $4.0 million. The debt of one of these portfolio companies was previously ranked as a loan grade 2 out of 4 (with 4 representing the best).
"Year-to-date, net realized gains announced by American Capital total $34 million. We anticipate additional realized gains this year as well as realized losses and believe we are on track to achieve our guidance of $10 million to $30 million of net capital gains," said COO Ira Wagner. "These three exits are representative of a seasoning portfolio and the rebound of M&A activity."
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American Capital Realizes $23.5 Million Additional Gain on its Investment in Weston Solutions
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 In June, American Capital's portfolio company, Weston Solutions, Inc., completed a recapitalization that resulted in Weston employees gaining 100% ownership of the firm by purchasing American Capital's equity interests in the company. American Capital netted proceeds of $24.7 million and a realized gain of $23.5 million. American Capital received $27.4 million in realized gains over the life of the investment, earning a 68% compounded annual return on its investment. The realized gain exceeded the first quarter 2003 valuation by $2.7 million.
Weston was recapitalized by its existing senior lender, Fleet Capital Corporation, part of FleetBoston Financial (NYSE: FBF), American Capital and Allied Capital Corporation (NYSE: ALD). Fleet expanded the senior loan to Weston from $40 million to $47 million. Weston also received a $25 million senior subordinated secured debt investment with American Capital investing $12.8 million and Allied Capital investing $12.2 million of that total.
American Capital invested $30 million in June 2001 in Weston. Weston has periodically prepaid its debt investment with American Capital and with this transaction American Capital has sold its equity stake in the company.
Click here for more information about Weston.
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The following three exits were announced in August, 2003:
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A&M Cleaning Products, Inc.
American Capital portfolio company A&M Cleaning Products Inc. has been sold to BioLab Inc., allowing American Capital to completely exit its investments in A&M. American Capital realized a $5.2 million gain and earned a 31% compounded annual rate of return on its subordinated debt with warrants and preferred stock investments, including the repayment of all interest, dividends and fees received over the life of American Capital's aggregate investments in the company. The sale proceeds recognized by American Capital include proceeds held in escrow of approximately $0.9 million and American Capital could receive up to an additional $0.3 million in sale proceeds held in escrow over the next three years. The sale proceeds recognized by American Capital from the exit exceeded the second quarter 2003 valuation of its A&M investment by $0.3 million. A&M is a manufacturer and marketer of a fast-growing regional line of multipurpose cleaners under the brand name Greased Lightning.
Caswell-Massey Holding Corp.
In addition, American Capital has completely exited its investment in Caswell-Massey Holdings Corp. American Capital realized a $0.3 million loss and earned a 16% compounded annual rate of return on its senior and subordinated debt investments and warrants, including all interest and fees earned over the life of the investments. American Capital first invested in Caswell-Massey in 1999. The $2.7 million value of American Capital's exit exceeded the second quarter 2003 valuation of its Caswell-Massey investment by $0.3 million.
Click here for more information about American Capital's investment in Caswell-Massey.
DigitalNet Inc.
American Capital also has exited its $14.5 million first quarter 2003 investment in senior subordinated bridge notes of DigitalNet Inc., a federal IT and managed network services company. American Capital realized a $0.7 million gain and earned a 54% compounded annual rate of return on its senior subordinated brdige notes, including all interest and fees over the life of the investment. The realized gain exceeded American Capital's second quarter 2003 valuation of its DigitalNet investment by $0.7 million. American Capital retains warrants for common stock of the company.
For the complete press release click here.
Through the second quarter of 2003, American Capital enjoyed a 22% compounded annual return on 32 exits and repayments of senior debt, subordinated debt and equity, totaling $376 million since its August 1997 IPO
For a chart detailing these exits click here.
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Fulton Bellows Files for Reorganization
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In June, American Capital portfolio company Fulton Bellows and Components Inc. filed for protection under Chapter 11 of the United States Bankruptcy Code. The filing was primarily intended to help Fulton address significant cost issues that have adversely affected its financial performance, including high wage, fringe benefit and other production costs. Other major factors that contributed to the decision to make the filing included the current economic situation and its impact on Fulton's markets and intensified worldwide competition. A successful restructuring would result in the Company having a significantly reduced cost structure.
American Capital has provided a debtor in possession revolving credit facility of up to $1.1 million, secured by a first lien on all of Fulton's assets. The financing is intended to allow Fulton to continue operating while meeting significant customer backlog as well as obligations to suppliers and employees during the bankruptcy process.
The Fulton bankruptcy court has approved procedures that could lead to a sale of substantially all of Fulton's assets pursuant to Section 363 of the Bankruptcy Code. Prospective buyers, including an affiliate of American Capital, are currently investigating purchasing Fulton's assets and a sale could be completed by the end of September.
Fulton Bellows is a producer of bellows for automotive, medical, aerospace and industrial applications.
Contact Gordon O'Brien, Principal or call (301) 951-6122.
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New Principal in Chicago
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Ian Larkin has joined American Capital as a Principal in the Chicago office with eleven years of private equity experience. Prior to joining American Capital, Ian was a managing director at William Blair Capital Partners. William Blair Capital Partners is a $400 million private equity fund based in Chicago. While at William Blair Capital Partners he served on the board of directors of American Blind & Wallpaper Factory, Apropos, CARA, Extended Care Information Network, Inc., Morton Grove Pharmaceuticals, Inc., Smith, Bucklin & Associates, and Sweetwater Sound. Before joining William Blair Capital Partners, Ian spent three years working in investment banking.
Email Ian or call him at (312) 681-7400.
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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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