Email us with questions or comments: nmarshi.bdcreporter@gmail.com           α

American Capital Senior Floating: Liquidation Approved

BDCs:
Premium Free

NEWS

On July 2, 2018 American Capital Senior Floating (ACSF) announced the results of a shareholder vote regarding the Board’s proposal to liquidate the BDC.

See the SEC filing attached.

The vote was held on June 28 and was overwhelmingly approved.

ACSF “will now begin execution” of the liquidation plan.

No further details were given.


ANALYSIS

Background

The BDC first mooted the decision to sell all assets, pay off all debts and distribute net proceeds to shareholders back on May 10, 2018.

We wrote an extensive review of the surprise choice on that same day.

Two Months Later

With the overwhelming shareholder approval, the External Manager (a subsidiary of Ares Management) of ACSF can proceed to start selling its loan and CLO assets in the marketplace.

We have no idea if ACSF has already sold a portion of its portfolio or not or has lined up buyers in advance.

In The Not So Distant Future

However, the market for leveraged loan assets remains as strong as when the liquidation was first announced, notwithstanding some market shakiness surrounding the impact of tariffs.

Based on the tentative timeline mentioned in the May 10 press release, the goal appears to sell the bulk  – if not all – the assets by the end of the summer.

Likely Receipts

ACSF has already announced monthly distributions out to a record date of July 20, 2018.

No commitments were made beyond that date for any distributions.

To date, all but one of the monthly distributions has passed its ex-dividend date, leaving only the July 2018 pay-out of $0.097 outstanding.

The May 10 ACSF press release detailed what investors should expect to receive:

Based on the fair value of our portfolio as of March 31, 2018, we currently estimate that, following the sale of the Company’s portfolio assets and after deducting for estimated expenses in connection with the liquidation and dissolution of the Company and the payment of all of the Company’s estimated other liabilities, the aggregate amount of distributions received by each stockholder (including cumulative dividends declared and payable after March 31, 2018) will be between 97% to 99% of the Company’s net asset value (“NAV”) per share as of March 31, 2018 of $13.11.

That amounts to $12.72 to $12.98. Minus the 3 monthly distributions, which aggregate $0.291, that implies the net value of the assets will be up to $12.69 once the dust settles, or 97% of the March 31, 2018 GAAP book value.

Market

As of the close on July 2, 2018 ACSF’s stock traded at a price of $12.35.

That’s a 2.7% discount to the higher end of the expected return to shareholders, net of the distributions.

However, the settlement of the BDC liquidation may be paid out in two installments, as funds are held back to pay off winding up costs and to back any commitments/warranties made to buyers.


VIEWS

We were surprised that Ares decided to liquidate – rather than to fix or merge ACSF, as mentioned in our article at the time.

However, we were not surprised that investors voted almost to a person (to coin a phrase) to allow the liquidation to go ahead.

Once your Investment Advisor loses interest in managing your fund, it’s time to part ways.

Never Can Say Goodbye

Many BDC shareholders have the opposite problem: incompetent managers trying very hard to hold onto the funds they manage despite poor track records.

ACSF has been neither very good nor very bad in its short history as a public company, but was wound up principally (we believe) because the compensation was too low to be interesting to the very well compensated folk at Ares.

No Impediment

Looking forward there is no reason that we’ve found that should keep the External Manager from being able to sell virtually all the portfolio assets in a very short time frame.

Most every investment on the books is a syndicated loan with multiple other lenders involved, many of whom are natural prospective buyers.

Then there is an army of other funds seeking out assets to book.

Even the CLO investments which ACSF owns should be salable given the very favorable market and regulatory conditions.

Not Much Difference

Whether that results in Ares exceeding its initial estimate of proceeds is impossible to know.

One way or another, the proceeds should be within a relatively narrow range suggesting investors will neither make a killing or lose their shirts.

Already a Member? Log In

Register for the BDC Reporter

The BDC Reporter has been writing about the changing Business Development Company landscape for a decade. We’ve become the leading publication on the BDC industry, with several thousand readers every month. We offer a broad range of free articles like this one, brought to you by an industry veteran and professional investor with 30 years of leveraged finance experience. All you have to do is register, so we can learn a little more about you and your interests. Registration will take only a few seconds.

Sign Up