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Fitch Downgrades American Capital Strategies' IDR to 'BBB-'; Rating Watch Negative

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^{Published in Business and Finance on Thursday, January 29th 2009 at 17:03 GMT, Last Modified on 2009-01-29 17:04:07 by Market Wire}  

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has downgraded American Capital Strategies LLC's (Nasdaq: ACAS) Issuer Default Rating (IDR) and debt ratings as follows:

--IDR to 'BBB-' from 'BBB';

--Senior Unsecured debt to 'BBB-' from 'BBB'.

The ratings remain on Rating Watch Negative.

The downgrades reflect Fitch's belief that unrealized depreciation on the portfolio will be beyond our expectations in the fourth quarter of 2008, which will reduce, or potentially negate, cushion on ACAS' asset coverage ratio and tangible net worth covenant. Business Development Companies (BDCs) are required to maintain asset coverage of 200% and ACAS' ratio was at 211% as of Sept. 30, 2008. The company amended its tangible net worth covenant in September 2008, but Fitch believes unforeseen market movements in the fourth quarter may require ACAS to seek further relief under its covenants.

While Fitch believes all BDCs will focus on capital preservation throughout 2009; a breach of a financial covenant may require ACAS to sell assets in order to de-leverage more quickly. Proceeds from asset sales are likely to be below management's estimate of intrinsic value given the current environment.

Resolution of the Rating Watch Negative will be dependent on ACAS's ability to de-lever, improve capitalization, and build a cushion on its asset coverage ratio. Should fourth quarter portfolio marks result in a violation of the asset coverage requirement, under the Investment Company Act, Fitch believes this could result in a downgrade in ratings by at least one notch. Conversely, Fitch could remove the Rating Watch Negative if ACAS is able to remain in compliance with all financial covenants at year-end 2008, and build sufficient cushion in subsequent quarters to reduce the likelihood of breaching covenants in the immediate future. Even if successful, however, the Rating Outlook will likely be Negative until market conditions stabilize.

ACAS is a publicly traded business development company that provides investment capital in the form of senior and subordinated debt and equity to middle market companies. At Sept. 30, 2008, ACAS reported total assets under management of nearly $16 billion at fair value, which included total owned investments of approximately $10 billion.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ www.fitchratings.com ]. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.