starkawa

American Capital Strategies: Management Credibility in Question

Thank you for a timely and in-depth analysis of your view; I really enjoy your post. I just listened to their conference calls and in my view long term, the stable/strong NOI, capital preservation through temporary cancellation of dividend, and managing the debt prudently all seem positive. However, I do have two questions/concerns that I'm hoping you would be kind to share your insights on:

1. I assume all mark-to-market multiples and bond yield analysis are done with data as of 9/30/08. As we all know the S&P as of 11/10/08 has been down over 20% since 9/30/08 and the bond yield has certainly reflected extreme lack of confidence (which they mentioned the week of Oct 10 served as wake-up call). Does that mean the NAV of the company (although hard to measure) can be roughly assumed at ~$19.54, a 20% discount of $24.43?

2. With assumed $19.54 NAV and 208.1 million outstanding shares, this put their net asset value at $4,066M; this will violate their covenant (MIN $4,500M) should the market stay flat till 12/31/2008. With a solid portfolio and healthy capital, how likely can American Capital overcome this $434M gap, even assuming in Q408 they'll break even in NAV? Good chances in further amending credit facilities by paying down more debt with their enhanced cash base?

Thank you very much for your time in advance.