(ACAS) Announces Plans to Split into Three Companies

BETHESDA, Md., Nov. 5, 2014 — American Capital, Ltd. (Nasdaq: ACAS) (“American Capital” or the “Company”) announced today that its Board of Directors has unanimously approved a plan to split the Company’s businesses by transferring most of the Corporation’s investment assets to two newly established business development companies (“BDCs”) and having American Capital continue primarily in the asset management business.  It is contemplated that American Capital will spin off the new BDCs to its shareholders, resulting in three, publicly-traded companies.

The two new BDCs are anticipated to qualify and elect to be taxed as regulated investment companies with the objective of paying market rate dividends.  The two planned BDCs are as follows:

• American Capital Growth and Income, Ltd., whose assets will consist primarily of securities issued by operating companies purchased through American Capital One Stop Buyouts, senior floating rate loans to private companies and CLO equity investments. Based on the Company’s current asset composition, this business is at present allocated approximately $3 billion of equity.
• American Capital Income, Ltd., whose assets will consist primarily of second lien and mezzanine loans to middle market companies of the type currently originated by American Capital’s Sponsor Finance business. Based on the Company’s current asset composition, this business is at present allocated approximately $1 billion of equity.

Each of the new BDCs will enter into management agreements to be managed by American Capital, where all employees would reside.  Those management agreements are expected to be on terms consistent with current market practices.  As part of the transaction, American Capital will consolidate its operations and remaining assets with American Capital Asset Management, LLC, its existing wholly-owned asset management portfolio company, and will discontinue being an investment company.  Based on the company’s current asset composition, this business is at present allocated approximately $1 billion of equity.

“We believe that this transaction should be of significant benefit to our shareholders,” said Malon Wilkus, Chairman and CEO of American Capital.  “Separating our robust asset management business from our investment assets and allocating our investments between two distinct investment strategies will better tailor our businesses to the investment interests of our shareholders.  These steps will offer greater transparency, allow investors to understand better the underlying value of our businesses, provide for differing dividend policies and should make us more competitive in the markets in which we operate.”

American Capital also announced that due to changes in the composition of its investment portfolio and market conditions, it has undertaken various cost saving initiatives, which are expected to result in approximately $25 million of reduced costs annually, beginning in early 2015.  Also, the Company will implement a program under which portfolio companies in which it or its managed funds have invested will reimburse the Company for certain services the Company provides to those portfolio companies.  Based on current service levels and consistent with market practices and contractual understandings, this program is expected to provide for reimbursements at a $21 million annual rate by the end of 2015.  In addition, at least $25 million of the Company’s current annual SG&A is for the benefit of funds that will be under management following the split, and the Company expects that such amount will be reimbursable under management fee agreements consistent with market practices.

“Our cost reductions, which primarily result from the elimination of staff positions, reflect changes in the composition of our assets and market conditions and should be of continuing benefit to our shareholders,” said John Erickson, President, Structured Finance, and Chief Financial Officer of American Capital.  “Similarly, we expect the reimbursement for services to portfolio companies and the funds that we manage to benefit American Capital shareholders as we appropriately allocate costs among various companies.  To the extent that we are not able to achieve the expected level of reimbursements, we intend to reduce American Capital’s costs.”

The Company added that it will seek to accomplish the spin off of American Capital Growth and Income by issuing a tax free dividend to its shareholders and that the spin off of American Capital Income is expected to be treated as a taxable dividend to its shareholders.  American Capital will continue to be a taxable corporation and will retain any net operating losses that exist at the time of the spin offs. The transaction is subject to certain conditions including the approval of American Capital shareholders who, among other matters, must approve American Capital’s de-election to be regulated as a BDC under the Investment Company Act of 1940, as amended.

Other conditions to completion of the transaction include final approval by the American Capital Board of Directors, receipt of a tax opinion from our tax advisers, the filing of registration statements with the U.S. Securities and Exchange Commission (“SEC”) and their effectiveness, the holding of a special meeting of shareholders and the filing with and review of a proxy statement for that meeting by the SEC staff, the refinancing of American Capital’s indebtedness and the establishment of credit facilities for the new BDCs.  The transaction may also need regulatory relief from the SEC.  American Capital expects to make necessary filings with the SEC as soon as practicable.  There can be no assurances regarding the timing of the transaction, whether the transaction will be completed or the tax treatment of the transaction.

ABOUT AMERICAN CAPITAL
American Capital, Ltd. (Nasdaq: ACAS) is a publicly traded private equity firm and global asset manager.  American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate, energy & infrastructure and structured products.  American Capital manages $21 billion of assets, including assets on its balance sheet and fee earning assets under management by affiliated managers, with $80 billion of total assets under management (including levered assets). Through an affiliate, American Capital manages publicly traded American Capital Agency Corp. (Nasdaq: AGNC), American Capital Mortgage Investment Corp. (Nasdaq: MTGE) and American Capital Senior Floating, Ltd. (Nasdaq: ACSF) with approximately $11 billion in total net book value.  From its eight offices in the U.S. and Europe, American Capital and its affiliate, European Capital, will consider investment opportunities from $10 million to $750 million. For further information, please refer to www.AmericanCapital.com.

FORWARD LOOKING STATEMENTS AND ADDITIONAL INFORMATION
This press release contains forward-looking information and statements.  Forward-looking statements give our current expectations and projections relating to the Company’s financial condition, results of operations, plans, objectives, future performance and business.  You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts.  These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “confident,” “may,” “should,” “can have,” “likely,” “future” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.  Forward looking statements are not guarantees of performance or results, and involve known and unknown risks, uncertainties (some of which are beyond the Company’s control), assumptions and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements.  Should one or more of these risks or uncertainties materialize, the Company’s actual results may vary in material respects from those projected in any forward-looking statements.  A detailed discussion of these and other factors that may affect future results is contained in our filings with the U.S. Securities and Exchange Commission.  Any forward-looking statement made by the Company in this press release speaks only as of the date on which it is made.  The Company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

This press release does not constitute the solicitation of any vote, proxy or approval from any investor or security holder.  No such solicitation will be made except pursuant to a proxy statement filed with the SEC.  This press release also does not constitute an offer to sell or buy any securities. 

Contact:
Investor Relations – (301) 951-5917