American Capital, Ltd. (ACAS)

Q4 2012 Earnings Conference Call

February 11, 2013, 11:00 AM ET

Executives

Malon Wilkus - Chairman and CEO

John R. Erickson - President, Structured Finance and CFO

Ira J. Wagner - President, European Private Finance

Rich Konzmann - SVP, Accounting and Reporting

Pete Deoudes - IR

Analysts

Richard Shane - JPMorgan

Jasper Burch - Macquarie

Kyle Joseph - Stephens

Troy Ward - Stifel Nicolaus

Vernon Plack - BB&T Capital Markets

Jonathan Bock - Wells Fargo Securities

Presentation

Operator

Good morning. Welcome to the American Capital Fourth Quarter 2012 Shareholder Call. All participants will be in listen-only mode. (Operator Instructions). After today's presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Pete Deoudes in Investor Relations. Please go ahead.

Pete Deoudes

Thank you, Laura. Thank you, everyone, for joining American Capital's Fourth Quarter 2012 Earnings Call. Before we begin the call, I'd like to review the Safe Harbor statement.

This conference call and corresponding slide presentation contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are intended to be subject to the Safe Harbor protection provided by the Reform Act. Actual outcomes and results could differ materially from those forecast due to the impact of many factors beyond the control of American Capital. All forward-looking statements included in this presentation are made only as of the date of this presentation and are subject to change without notice.

Certain factors that could cause actual results to differ materially from those contained in the forward-looking statements are included in our periodic reports filed with the Securities and Exchange Commission. Copies are available on the SEC's website at www.sec.gov. We disclaim any obligation to update our forward-looking statements unless required by law.

An archive of this presentation will be available on our website, and the telephone recording can be accessed through February 26 by dialing (877) 344-7529. The replay passcode is 10024416.

To view the Q4 slide presentation that corresponds with this call, please turn to our website at www.americancapital.com and click on the Q4 2012 Earnings Presentation link in the upper right-hand corner of the homepage. Please select the webcast option for both slides and audio, or click on the link in the Conference Call section to view the streaming slide presentation during the call.

Participating on today's call are Malon Wilkus, Chairman and Chief Executive Officer; John Erickson, President, Structured Finance and Chief Financial Officer; Gordon O'Brien, President, Specialty Finance and Operations; Sam Flax, Executive Vice President and General Counsel; Rich Konzmann, Senior Vice President, Accounting and Reporting; and Tom McHale, Senior Vice President, Finance.

With that, I'll turn the call over to Malon.

Malon Wilkus

Thanks, Pete. Thanks everyone for taking the time to join us today. The fourth quarter of 2012 capped an excellent year for American Capital. A high level review of the year shows that net operating income totaled $397 million, American Capital Asset Management appreciated $329 million, previously depreciated assets recovered approximately $325 million of net value, and the net value of our remaining portfolio of private finance companies grew by approximately $75 million. This adds up to $1.1 billion in net earnings or $3.44 per diluted share, a 22% return on equity. These earnings were 14% higher than our prior best in 2010.

Now for the details, please turn to slide 3. For the year, our net asset value grew $3.97 per share to $17.84 at year-end, increasing 29% for the year. We produced $1.16 net operating income before taxes per diluted share or $383 million, a 7.7% return on equity. As I just mentioned, our net earnings totaled $3.44 per diluted share or $1.1 billion, a 22% return on equity.

We had $1.5 billion in realizations from portfolio exits and we originated $719 million of new investments which we believe will generate attractive returns for our shareholders. Additionally, our highly accretive stock repurchase and dividend program continues to be an important enhancement to shareholder value. We repurchased 35 million shares or $362 million at an average price of $10.39 per share, producing $0.77 in accretion to NAV per share.

Considering the enhancements we made to our balance sheet since 2008, S&P increased our debt rating in Q4 from B to B+. Remember, we refinanced the remaining 600 million of our non-securitized debt and obtained a new $250 million senior secured revolving credit facility in the third quarter of 2012. We also repaid 487 million of securitized debt in 2012 bringing our debt equity ratio to less than 0.1 to 1.

Turning to slide 4, in the fourth quarter of 2012, our net asset value increased to $17.84, $0.45 for the quarter or 10% annualized. We produced $0.36 net operating income before income taxes per diluted share or I should say $115 million and $0.38 or $123 million of net earnings, a 9% annualized return on equity.

We had 634 million of realizations and 527 million of new investment commitments in the quarter and under our stock repurchase and dividend program, we had $0.18 per share of accretion due to our stock repurchases in the fourth quarter.

I'm going to skip slides 5 and 6 and leave it to you to review the details of our new investments for the year and quarter on your own. So please turn to slide 7 where we will review two of our investments that comprise a portion of the $719 million of new investment commitments made in 2012.

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