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Fitch Downgrades American Capital Strategies IDR to 'C'

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^{Published in Business and Finance on Thursday, December 17th 2009 at 16:45 GMT by Market Wire}  

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has downgraded American Capital Strategies LLC (Nasdaq:ACAS) ratings as follows:

--Issuer Default Rating (IDR) to 'C' from 'CC';

--Senior unsecured debt to 'CCC/RR2' from 'B-/RR2'.

All ratings have been removed from Rating Watch Negative. Approximately $2 billion of debt is affected by this action.

The downgrade of ACAS' IDR to 'C' reflects the fact that ACAS is operating under a stand-still agreement with unsecured creditors and is coupled with Fitch's expectation that ACAS will pursue a pre-packaged Chapter 11 plan of reorganization if it is unable to reach a restructure agreement with unsecured creditors.

Based on a Recovery Rating (RR) of 'RR2', notching of the senior unsecured debt rating remains above that of the IDR and continues to reflect Fitch's belief that collateral available to creditors, even on a stressed basis, provides superior recovery prospects given default.

The company has been pursuing an out-of court restructure with all unsecured creditors, which includes banks and holders of both public and privately issued debt. The proposed restructure terms include a pledge of substantially all of the company's assets as collateral, an up-front principal payment of $450 million and subsequent annual principal amortization payments totaling $850 million through maturity with the $750 million remaining balance due at maturity on Dec. 31, 2013. Cash dividends would be limited to no more than the minimum legally required.

In accordance with Fitch's Coercive Debt Exchange ('CDE') criteria, published March 3, 2009, Fitch believes, based on the proposed terms of the exchange transaction and the threat and probability of a bankruptcy filing, the proposed restructure is considered a coercive debt exchange (CDE).

In the event ACAS restructures its unsecured debt as planned, Fitch will likely downgrade ACAS' IDR to 'RD'. A rating of 'RD' indicates an issuer has experienced an uncured payment default on a material financial obligation but which has not entered into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure, and which has not otherwise ceased business.

ACAS recently entered into a Lock Up agreement with bank lenders concerning this restructure. Pursuant to terms of the Lock Up agreement, bank lenders have agreed to support approval of a plan of reorganization that includes the proposed terms of the exchange transaction should ACAS fail to obtain the required approval of public and private unsecured debt holders and elects to solicit votes for a pre-packaged Chapter 11 plan of reorganization. The Lock Up agreement would terminate if ACAS does not file bankruptcy before Jan. 31, 2010 or, in the event of a bankruptcy filing, confirmation of the proposed restructuring plan is not completed before March 31, 2010. In the event ACAS files for bankruptcy, Fitch will downgrade the IDR to 'D'.

Additional information is available at [ www.fitchratings.com ].

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