Tuesday, September 7, 2010

ACAS: Another Exit (and More On Horizon)

Recently, a poster suggested that ACAS would have enough funds to make good on its intended debt pre-payment this year, a move that would reduce ACAS' interest rate on its entire outstanding debt and improve its spread on its entire portfolio – an already-announced NOI-enhancing move that, when taken, will have an impact greatly exceeding the size of the modest investment involved.

This week, we receive word that ACAS exited its investment in Innova-Extel Acquisition Holdings for $125 million in cash. The buyer, Hunting PLC, is an oil services company whose energy industry support solutions business has an obvious use for the harsh-environment printed circuit board technology and downhole logging tools, designed for the energy industry, that changed hands in the transaction.

The $125 million sale price isn't all going to ACAS – there are affiliates and managed funds and some senior management at Innova-Extel who will be getting a share. Assuming that the management share is slight, and that the managed funds share is the 30% ACAS transferred to a managed-funds portfolio a few years back, ACAS should be getting something a bit under $90 million in cash.

Considering that ACAS' price point to reduce its interest rate is $300 million, this transaction alone would get ACAS much of the way there if it hadn't already paid the principal back (a timing fact not yet public and not known to this author). Recovering $90 million in capital puts ACAS a long way toward pursuing its announced objectives of prepaying $310 million in debt to reduce portfolio interest (to generate a 12% return on capital) while originating high-quality new investments (using on-balance-sheet securitizations for new debt and targeting a 0.6:1 debt:equity ratio).

The progress toward management's announced objectives is underlined by ACAS' apparent preparedness to sell a major stake in its largest investment in its portfolio, while improving ACAS' liquidity for the non-exited investment: Mirion has filed a new set of IPO papers. The last time ACAS filed MION IPO papers, it pulled the plug on the deal because selling near the last-listed "fair value" wasn't rich enough (the price the street was then willing to pay was about $11, which yielded ACAS only a hair more than the last-listed "fair value" of the portion of MION owned by ACAS). The Mirion pitch (supplying the highly-regulated nuclear segment of the non-petroleum leg of the energy industry with high-tech compliance equipment and services) looks even better after the apparent lack of safety petroleum companies radiated during the BP disaster, and ACAS apparently hopes to cash in. I'm guessing ACAS tries for $14 a share, but IPOs are not a Jaded Consumer speciality and I don't claim any particular basis for this.

ACAS is clearly interested in doing deals and capable of moving on them. Ridding itself of the debt-refinancing concerns and the cloud of a potentially impending bankruptcy filing frees ACAS from a significant distraction. The ratings agencies' clouded view of ACAS – that it proved itself a bad risk based on the view that its lenders were coerced into taking the debt refinance – should give investors some more time to buy ACAS shares while people are still worried about its finances. After a few quarters of business as usual, those days may be gone.

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