American Capital asks investors for reverse stock split

The Nasdaq-listed business development company wants to reduce the number of outstanding shares to boost its stock price.

American Capital, the struggling Nasdaq-listed business development company, is asking its shareholders to approve a reverse stock split to bump the value of the company’s sagging shares.

A decrease in the number of shares “without any material alteration of the proportionate economic interest in us represented by individual shareholdings may increase the trading price of such shares to a more appropriate level,” American Capital said in a recent SEC filing.

American Capital shares are trading at “historically low levels …” because of “unprecedented developments in the capital markets and the overall recessionary environment”.

Increasing the trading value of the shares will help lift American Capital’s stock price above the $1 minimum bid price required by Nasdaq to stay listed on the exchange, the company said. Nasdaq has waived the $1 bid price requirement through 19 July, 2009. The shares had dropped below $1 in March but climbed back above the threshold and were trading at around $2.50 early Friday, up 46 cents from its close at $2.04 on 9 April.

A reverse stock split would not indicate a “going private” strategy, the company said in the filing. “We have no current plans to go private,” the company said.

Shareholders will vote on the proposal at the company’s annual meeting in June.

American Capital reported a $3.1 billion loss for the full-year 2008 and a $1.9 billion loss for the fourth quarter. The losses include $1.5 billion depreciation on the value of portfolio company investments.

The firm, which invests in mid-market companies, breached covenants governing $2.3 billion in debt and its auditing firm, Ernst & Young, included a “going concern” explanation in its audit report of the company’s financials.

American Capital ended the sale process on about six of its companies last year, electing to wait rather than sell the companies at “distressed prices”, Steven Burge, president North American Private Finance, said in a statement.

The company also de-listed its London Stock Exchange-listed affiliate European Capital and bought out the affiliate in late March.