May 6, 2009 / 2:16 PM / 10 years ago

American Capital shares fall on debt default

(Reuters) - Shares of American Capital Ltd ACAS.O fell 22 percent Wednesday, a day after the struggling private-equity firm said it was in default on $2.3 billion of unsecured debt.

“We are somewhat disappointed that American Capital was only able to reduce debt by $51 million during the quarter,” Wachovia Capital Markets analyst Jim Shanahan wrote in a note.

The analyst, who has a “market perform” rating on the stock, said “we are hesitant to become more constructive with our rating in the face of weakening credit quality and funding uncertainties.”

The Bethesda, Maryland-based company has been in talks with lenders since December about restructuring its credit facilities and is looking for buyers for its European portfolio in a deal that could be worth up to $2 billion.

The company has also hired restructuring firm Miller Buckfire & Co to help negotiate with its lenders.

The company is paying higher interest rates due to the defaults and credit downgrades so there will be an increase in expenses until a resolution is reached, Chief Financial Officer John Erickson said in a statement on Tuesday.

Business development companies like American Capital and Allied Capital ALD.N, which make loans to small and mid-sized businesses in return for equity stakes, have seen their investment portfolios shrink in the current turbulent environment. Also, raising capital has grown increasingly difficult.

American Capital, which got a going concern warning from auditors in March, posted a quarterly loss of $547 million or $2.65 cents a share on Tuesday. Income from ongoing operations was 31 cents a share.

American Capital shares, which have lost more than 80 percent in the last 12 months, were down $1.08 at $3.70 in morning trade on Nasdaq.

Reporting by Sweta Singh in Bangalore; Editing by Himani Sarkar

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