American Capital prolongs exchange offer, standby plan solicitation

By Jennifer Chiou

New York, June 2 - American Capital Ltd. announced the extension of its offer to exchange its outstanding unsecured public and private notes for cash payments and new secured notes.

The exchange offer is now set to expire at 5 p.m. ET on June 8, prolonged from June 1. It began on May 3.

As of the prior deadline on June 1, holders had tendered the following unsecured private notes:

• $73.5 million, or 87.8%, of its 5.92% senior notes, series A due Sept. 1, 2009;

• $89.2 million, or 94.0%, of its 6.46% senior notes, series B due Sept. 1, 2011;

• $121.5 million, or 90.5%, of its 6.14% senior notes, series 2005-A due Aug. 1, 2010;

• None of the outstanding floating-rate senior notes, series 2005-B due Oct. 30, 2020;

• All €14.8 million of its 5.177% senior notes, series 2006-A due Feb. 9, 2011; and

• All £3.3 million of its 6.565% senior notes, series 2006-B due Feb. 9, 2011.

As already reported, the offer is part of a comprehensive financial restructuring of substantially all of the company's outstanding unsecured debt.

American Capital already said that the proposed restructuring addresses breaches of financial covenants and other defaults under the agreements governing the unsecured debt.

According to a previous release, the restructuring transactions involve $960 million in cash principal payments to the holders of existing debt and the issuance of $1.39 billion in new secured notes and loans.

Specifically, the restructuring includes an offer to exchange all $963 million of American Capital's existing private and public unsecured notes for a total cash payment of a minimum of 39% of the total principal amount of the existing notes, four series of newly issued amortizing secured notes due Dec. 31, 2013 equal in principal amount to the notes exchanged, less the total cash payment, and the payment of a fee equal to 2% of the total principal amount of the new secured notes, plus interest on the notes exchanged in the offer.

The four series of new secured notes include floating-rate dollar-denominated notes and adjustable fixed-rate notes denominated in dollars, euros and pounds.

The company said the exchange offer also includes a solicitation of consents from the holders of the existing public notes to remove the basis for an existing default under the public notes indenture.

Loan refinancing

Simultaneously with the completion of the out-of-court exchange offer, American Capital said there will be a refinancing of $1.387 billion in loans outstanding under its unsecured credit agreement.

Under the refinancing, the company and the lenders will enter into a new credit agreement providing for the repayment of a minimum of 39% in total principal amount of the existing loans, the conversion of the remaining outstanding principal amount of the existing loans into new secured term loans maturing on Dec. 31, 2013, and the payment of a fee equal to 2% of the total principal amount of the new secured loans, plus interest.

The existing credit agreement lenders have already entered a lock-up agreement, which requires them to enter into the refinancing, subject to satisfaction of various conditions.

The holders of the existing notes and the lenders participating in the out-of-court restructuring can elect to receive either cash or new secured debt in exchange for their unsecured debt, subject to minimum cash payments and other adjustments or reallocations as may be required to allow for the payment of the full $960 million of cash.

The floating-rate notes and the new secured loans will initially bear interest at Libor plus 650 basis points with a 2% Libor floor, subject to a reduction to 550 bps once the total principal amount of new secured notes and loans that remain outstanding drops below $1 billion.

The adjustable fixed-rate notes denominated in dollars, euros and Sterling will initially bear interest at 2.46%, 2.25% and 2.58%, respectively, plus an additional 6.5%, which is similarly subject to reduction to 5.5%.

Both the new secured notes and the new secured loans will be secured by a first-priority lien on substantially all of the company's existing unencumbered and after-acquired tangible and intangible assets.

The completion of the exchange offer is subject to the conditions that all of the lenders execute the new credit agreement, all of the holders of the existing private notes tender in the exchange offer and holders of at least 85% of the existing public notes tender in the exchange offer.

Plan solicitation

The company previously said that it plans to complete an out-of-court restructuring, but if the conditions to completion of the out-of court restructuring are not satisfied or waived, the restructuring could be completed through a pre-packaged in-court restructuring.

As a result, American Capital is also soliciting votes to accept a standby plan of reorganization from lenders, noteholders and swap agreement counterparties.

Under the plan, these creditors would receive substantially identical consideration to that they would receive under the out-of-court restructuring, although creditors would not have the right to elect whether they preferred to receive cash or new secured debt.

If the exchange offer and the new credit agreement are not completed, but at least one of the classes of the holders of the company's existing private notes, existing public notes and existing loans has voted to accept the standby plan by the expiration of the exchange offer, the company said it could file for Chapter 11 bankruptcy and seek prompt confirmation of the standby plan.

As of June 1, the company said that with regard to lenders under its existing credit agreement whose $1.4 billion of claims constitute class 3 existing credit agreement claims, all of the lenders participated in the solicitation of votes for the standby plan.

As for holders of its unsecured private notes, whose roughly $406 million in claims constitute class 4 private notes claims, about 60% of holders participated in and supported the solicitation of votes for the standby plan.

And, with regard to the holders of the unsecured public 6.85% senior notes due Aug. 1, 2012, whose $550 million in claims constitute class 6 public notes claims, 76.5% of holders participated in the solicitation of votes for the standby plan. Of those participants, 6.01% in principal amount and 27.66% in number of votes cast supported the standby plan.

Those whose claims constitute class 7 swap claims all cast votes supporting the standby plan.

American Capital is a Bethesda, Md.-based private equity firm and global asset manager.

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