It seems that two of the nation’s largest business development companies are dealing with serious debt restructuring. American Capital Limited and Allied Capital Corporation continue to work out a deal with lenders to resolve various debt defaults and covenant violations.
Allied Capital has made some recent strides, reporting progress in its discussion with lenders about restructuring loan terms. The company is dealing with the consequences of covenant violations of revolving lines of credit and private notes.
Officials with Allied said that the back in July they agreed in principle to terms with different lenders to what has been termed a “comprehensive restructuring” of the debt agreements in order to provide better covenant coverage.
Allied CEO, John Scheurer commented on the plan, saying that there will be a high price tag on restructuring measures. He also said this would deep the company’s cash burden, leading to continued asset sales and cut back s in operating costs in order preserve cash. Allied would be unable to pay for cash dividends for an unspecified period.
The very fact that there is a chance that lenders will demand an acceleration of repayment since the July agreement is a nonbinding one has created a certain amount of apprehension.
Scheurer was clear about one thing. “Our objective is to achieve more flexibility on financial covenants so that we can operate.”
Any covenants would require that Allied maintain its asset coverage ratio at 200% and no less. This ruling is further strengthened by the idea that in order to maintain its status as a business development company, it must adhere to similar demands that were outlined in the Investment Company Act of 1940.
As of June 30, Allied’s asset coverage ratio was 174%, slightly better than the 171% it reached back on March 31. Additionally, the company has ad about $50 million borrowing under its revolver as well as $1 billion in outstanding private notes.
The other business development company, American Capital, has been negotiating with unsecured creditors to resolve defaults during recent conferences. Allied Capital reported $126.1 million of net realized losses during quarter. An $81.5 million gain on debt repurchases help the company lower its overall net loss, which totaled $29.1 million.
Tags: high price tag, Allied Capital Corporation, discussion, allied capital, revolver, burden, ruling, debt
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