Several listed North American private equity firms have released dismal earnings statements.
American Capital is delaying the sale of six portfolio companies because the discounts buyers are expecting are too low, despite reporting a $3.1 billion loss for the full-year 2008.
“During the fourth quarter, we ended the sale process on approximately six companies as we believed bidders began assuming that anyone selling in the fourth quarter was a forced seller,” Steven Burge, president North American Private Finance, said in a statement. “Since we are a long-term, patient investor, we elected to wait rather than sell at distressed prices, which is fundamental to our investment success.”
The Nasdaq-listed firm said, despite delaying the sales of the six companies, it has completed four realisations from portfolio companies in 2009 and is marketing eight more companies for sale this year. The firm was removed from the S&P 500 Index last week.
American Capital reported $3.1 billion loss for the full-year 2008 and a $1.9 billion loss in the fourth quarter. The quarterly loss included $1.5 billion depreciation on the value of portfolio company investments.
The firm, which invests in mid-market companies, also said it had breached covenants governing $2.3 billion of debt and its auditing firm, Ernst & Young, included a “going concern” explanation in its audit report of the company’s financials.
“We began working with our lenders in December to revise our covenants,” John Erickson, chief financial officer with American Capital, said in a statement.
American Capital’s woes are mirrored by several other publicly listed private equity firms, including Canada’s Onex Corporation, which posted a C$348 million loss for the fourth quarter, and a C$283 million loss for the full-year 2008.
“This is one of the most tumultuous economic environments experienced by businesses around the world,” Gerald Schwartz, chairman and chief executive officer of Onex, said in a statement. “In preparation for a prolonged contraction, our operating companies continue to be acutely focused on reducing costs and managing capital spending.”
Toronto Stock Exchange-listed Onex has been raising its third private equity fund, Onex Partners III, targeting C$4 billion. The firm had reached the C$3 billion mark at the end of 2008, Onex said.
The fund originally was targeting C$4.5 billion, which was reduced to C$4 billion after Onex reduced its balance-sheet commitment to the fund by $500 million in January as a way of “managing its capital base”.
Another listed firm, Allied Capital, reported a $1 billion loss for 2008, driven in part by declines in the value of its investment portfolio. Allied’s audit firm expressed “substantial doubt” about the firm’s ability to continue as a going concern in its 2008 audit opinion.
Allied, based in Washington DC, appointed company veteran John Scheurer as chief executive officer after William Walton stepped down from the role. Walton will continue to serve as board chairman.