Friday, July 2, 2010

ACAS Exits

ACAS' recent sale of to BankRate frees the company from a property that, as I understood it, didn't live up to its billing and had ended up being primarily a vehicle for obtaining referral fees. The purchase at $145 million is not all going to ACAS (though the preferred redemption feature may make ACAS effectively a bigger owner than just the size of ACAS' control block), but this value is above ACAS' last-published fair value for the company (<$120m), which makes it interesting to wait for the news. (Of course, exiting 13.9% and 19.0% bonds makes it interesting to ask what ACAS would do with the money that's better. Still, realizing an equity loss will help ACAS avoid paying a larger dividend next year, which is important to maintaining its capital. As much as I enjoy having zero tax expense at ACAS, I enjoy reinvestment more. Realizing losses when recovery looks dim is absolutely sensible.)

ACAS' management has always said that it didn't just sell winners, and getting back capital to invest in more promising deals had great value; this exit seems right in line with that thinking. ACAS will get out of a deal that didn't do what management hoped, and help prevent an outsized dividend next year by realizing losses in the current period on its equity investment in Inc. Since ACAS (as a BDC) is required to pay 90% of its taxable income in dividends, and ACAS can't be sure it will be in a position to raise capital above NAV to pursue interesting deals, avoiding payment of outsized dividends by early realization of losses makes good sense when the price is right.

With the debt restructuring distraction behind ACAS, I hope to see many distressed situation entries – and shedding unexciting investments seems a great way to fund a more exciting future.

The next question is interesting: why is ACAS under $5? Did people expect a non-bankruptcy pop and then exit when they were bored? Personally, I think we need to see next quarter's earnings results to allow the benefit of the debt restructuring to have any likelihood of showing up in the share price.


clb said...

"The next question is interesting: why is ACAS under $5? "

good question, I bought more at 5.01 and doubled down by selling some $5 aug puts. I hope Mr. Market starts asking the same question and brings ACAS back up at least near $5 sometime soon.

Anonymous said...

FYI / ACAS also got out of Resort Funding Holdings Inc. in the 2nd quarter. Depending on the accounting for ACAS's book - would appear to be a $25M+ loss. ACAS didn't openly report the purchase of RF in 2006 and probably won't report a word of its exit now.

Camilo said...

I wonder what your thoughts are on today's ECAS exit.

Anonymous said...

Have a link to the resort funding sale?

Anonymous said...

Narus, Inc.
Boeing (NYSE: BA) entered into an agreement to acquire Narus, Inc. on July 7, 2010. The financial terms of the transaction were not disclosed. On completion, Narus will operate within Boeing's Network & Space Systems business as a wholly owned subsidiary. The transaction is expected to close during the third quarter of 2010. BofA Merrill Lynch acted as financial advisor to Boeing.

ACAS's price was unchanged after the transaction was announced on 07/7/10.
Investor / Buyer
Boeing Co.
American Capital, Ltd.
JPMP Capital, LLC
Mayfield Fund
NeoCarta Ventures, Inc.
Walden International

Any comments on this sale? Acas participated in 2 round in 06 and 09......

Anonymous said...

Resort Funding sale is based personal conttacts/ no links. As I mentioned, you probably won't see anything mentioned open source unless it shows up in the 2Q-10Q. You will see it disappear from their holdings summary by 3Q-10Q. I bought more ACAS last week at $4.50.

Anonymous said...

Nice buy down there....almost 70 percent off from NAV. From my personal contacts I have surmised ACAS will not announce any deal that is not tangible. As such Narus..RRTS...Resorts..are no paramount. More importantly is we maintain this conversation as to the progress of sales. Aside from NAV writeups....exits are most important and are def not static. Stay in touch.