27 de febrero de 2009 / 17:08 / en 8 años

PREVIEW-Write-downs to weigh on American Capital, Allied results

* American Capital, Allied Q4 results on March 2

* Analysts see results weakening on write-downs

* Both cos face liquidity issues

* Allied Capital may suspend dividend

* Both expected to cut jobs through '09

By Adheesha Sarkar

BANGALORE, Feb 27 (Reuters) - Significant write-downs are expected to weigh on quarterly results at American Capital Ltd ACAS.O and Allied Capital Corp ALD.N and force the two largest U.S. business development companies to cut jobs through the year.

Both companies also face liquidity issues and are in talks with their lenders regarding renegotiation of debt covenants on their credit facilities, and analysts expect Allied Capital to suspend its dividend for 2009.

Significant write-downs are expected at both Allied and American Capital due to deteriorating asset quality.

"They are trying to just stay afloat right now," FBR Capital Markets analyst Scott Valentin said. "Maintaining liquidity is their main goal at the moment."

Valentin said both companies are expected to report higher non-performing assets and a consequent decline in operating income.

The business development companies, which make loans to small and mid-sized businesses in return for equity stakes, have seen their investment portfolios shrink as stock prices tumble, and raising capital has become increasingly difficult in the current environment.

"If I have a great opportunity to invest in a company that makes loan to small businesses, people today are saying 'no thank you,'" Stifel Nicolaus analyst Greg Mason said.

American Capital said in January it would cut 110 jobs, or 19 percent of its workforce, to save costs. Allied said in November it is planning cost-cutting measures, including job cuts.

Analysts polled by Reuters on average expect American Capital to post fourth-quarter earnings of 64 cents a share and Allied to earn 22 cents, before special items.

American Capital is expected to perform comparatively better than Allied Capital as it has a history of rapid growth, a bigger portfolio and a relatively better cash-flow position.

Both companies posted losses for the third quarter, hurt by depreciating investment portfolios.

COVENANTS AND LIQUIDITY

Analyst Mason from Stifel Nicolaus said he believes American Capital may violate its debt covenants, and that the company is in talks with its lenders for a possible renegotiation.

Existing lenders to American Capital's $1.41 billion credit facility have been meeting to discuss on "how to deal with" the borrower, Reuters Loan Pricing Corp (RLPC) said earlier this month, quoting several lenders. The company has not been able to release its financial information to the lenders, RLPC added.

Bethesda, Maryland-based American Capital declined to comment on this issue.

Washington-based Allied Capital said last week that lenders notified it of a default under its credit facility, which could hamper the firm's liquidity and limit its ability to pay dividends and borrow.

Several analysts believe both the companies will be able to renegotiate their debt covenants, but at a heavy price.

At least three analysts expect higher interest expenses to pressure margins at both companies, given the fact that possible renegotiation of covenants will also prompt significantly higher interest rates.

In the event of a breach, lenders may force the companies to sell assets to pay back debt in a market where asset prices are falling fast and buyers are hard to come by. Analysts said this could leave the companies vulnerable.

"They have a chance of survival through this time period (2009), as long as the banks don't pull their funding," Stifel Nicolaus analyst Mason said.

Both companies' shares have lost almost 96 percent of their value over the past year, weighed down by concerns about their liquidity and debt covenants. (Reporting by Adheesha Sarkar in Bangalore; Editing by Deepak Kannan)

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