Interim Management Statement -- European Capital Limited Reports 2012 Net Operating Loss Of Euro (1) Million And Net Earnings Of Euro 23 Million

ST. PETER PORT, Guernsey, Aug. 30, 2012 /PRNewswire/ -- European Capital Limited ("European Capital" or the "Company") today issues an Interim Management Statement announcing net operating income ("NOI") for the half year ended 30 June 2012 of €(1) million and  Net earnings for the half year were €23 million.  As at 30 June 2012, net asset value ("NAV") was €650 million, a 4%, or €23 million increase from the 31 December 2011 NAV of €627 million and a €65 million decrease from the 30 June 2011 NAV of €715 million.

H1 2012 FINANCIAL SUMMARY

  • €(1) million NOI
    • Materially impacted by 1 particular asset put on non-accrual status
  • €(3) million net realised loss on investments
  • €18 million net unrealised appreciation on investments
  • €23 million net earnings
  • €56 million of cash proceeds from realisations
  • €20 million of securitised debt repaid
  • €95 million of committed investment
    • €84 million in new portfolio companies

"NAV grew by €23 million in the first half, performing better than we had expected considering the weak economy in some parts of Europe," said Malon Wilkus, Chairman and Chief Executive Officer.  "In the past six months our aggregate portfolio companies experienced moderate revenue and EBITDA growth, year over year.  We believe this reflects the fact that 99% of European Capital's portfolio companies are located in countries with AA credit ratings or better.  We were busy in the first half, generating €56 million cash realisations and investing €95 million of which €89 million was in senior loans.  We remain poised to consider new investments particularly if attractive pricing develops."

PORTFOLIO VALUATION

For the half year ended 30 June 2012, net unrealised appreciation of investments totalled €18 million on our private finance portfolio mainly driven by improvements in the performance of portfolio companies. 

PORTFOLIO LIQUIDITY AND PERFORMANCE

In the first half of 2012, €56 million of cash proceeds were received from realisations of portfolio investments.  The Company made €95 million in new committed investments in the first half of the year with €84 million committed to new portfolio companies and €11 million to support the current portfolio. 

"During the first half, we continued to see liquidity in the portfolio and deployed our capital into areas that add to shareholder value." said Ira Wagner, President.  "We are committed to supporting our existing portfolio companies as well as originating new, attractive investments.  We are actively pursuing additional attractive investment opportunities in both Debt investments and for One Stop Buyouts®".

Since inception, European Capital has invested €3.4 billion in 100 portfolio companies.  European Capital has realised €1.9 billion from the portfolio since inception, including senior debt syndications.  Out of the €1.9 billion we have exited fully 43 portfolio companies, realising an aggregate of €1.2 billion comprising:

  • €809 million of principal repayments;
  • €166 million from loan syndications and sales;
  • €125 million of collections of PIK notes and dividends; and
  • €111 million from sales of equity. 

These exits achieved an aggregate IRR of 9.7%.  The equity investments of these exited portfolio companies have achieved a 28.8% IRR.

European Capital's portfolio as of 30 June 2012 at fair value was €1.0 billion, with an average investment size of €20 million per portfolio company.  European Capital's largest investment represents 15.4% of total investment assets at fair value and the ten largest investments represent 56.3% of total investment assets at fair value as of 30 June 2012. 

As at 30 June 2012, loans with a cost of €269 million and a fair value of €60 million were on non-accrual, representing 8.2% of total loans at fair value, compared to €245 million cost and €40 million fair value of non-accrual loans, representing 7.8% of total loans at fair value as at 31 December 2011.  The €20 million increase in the fair value of loans on non-accrual was driven by additional loans being placed on non-accrual during the first half and appreciation in the fair value of loans already on non-accrual status.


 

EUROPEAN CAPITAL LIMITED

CONSOLIDATED BALANCE SHEETS

As of 30 June 2012, 31 December 2011 and 30 June 2011

(in thousands)






















 30 June 


 31 December 


30 June 2012 Versus


 30 June 


30 June 2012 Versus


2012


2011


 31 December 2011


2011


 30 June 2011





%




%


(unaudited)


(audited)






(unaudited)





Assets














Investments at fair value (Cost basis of €1,568,941, €1,555,191 and €1,638,416, respectively)

1,027,230


973,607


53,623


6%


1,099,214


(71,984)


-7%

Cash and cash equivalents

4,371


2,803


1,568


56%


2,257


2,114


94%

Restricted cash and cash equivalents

114,374


142,056


(27,682)


-19%


69,653


44,721


64%

Interest receivable

5,322


5,496


(174)


-3%


7,848


(2,526)


-32%

Derivatives agreements at fair value

305


126


179


142%


3,021


(2,716)


-90%

Other

4,453


4,529


(76)


-2%


6,522


(2,069)


-32%

Total assets

1,156,055


1,128,617


27,438


2%


1,188,515


(32,460)


-3%

Liabilities and Shareholder's Equity














Debt (maturing within one year €1,965, €2,356 and  €1,704, respectively)

434,579


439,017


(4,438)


-1%


429,685


4,894


1%

Due to European Capital Financial Services (Guernsey) Limited

1,116


1,439


(323)


-22%


1,818


(702)


-39%

Derivatives agreements at fair value

33,683


24,272


9,411


39%


915


32,768


NM

Other

36,999


37,153


(154)


0%


41,266


(4,267)


-10%

Total liabilities

506,377


501,881


4,496


1%


473,684


32,693


7%

Shareholder's equity:














Share Capital

224,475


224,475


-


0%


224,475


-


0%

Undistributed net realised earnings 

1,076,067


1,078,718


(2,651)


0%


1,087,988


(11,921)


-1%

Net unrealised foreign currency depreciation

(98,419)


(110,079)


11,660


11%


(133,373)


34,954


26%

Net unrealised depreciation of investments

(552,445)


(566,378)


13,933


2%


(464,259)


(88,186)


-19%

Total shareholder's equity

649,678


626,736


22,942


4%


714,831


(65,153)


-9%

Total liabilities and shareholder's equity

1,156,055


1,128,617


27,438


2%


1,188,515


(32,460)


-3%















NM = Not Meaningful





















 

EUROPEAN CAPITAL LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

Six Months Ended 30 June 2012 and 2011

(in thousands)

(unaudited)






Six Months Ended


Six Months Ended


30 June


30 June


2012


2011


2012 Versus 2011





%









OPERATING INCOME:








Interest and dividend income

24,258


66,240


(41,982)


-63%

Fee and other income

600


508


92


18%

Total operating income

24,858


66,748


(41,890)


-63%

OPERATING EXPENSES:








Interest

13,297


12,887


410


3%

Management fee

11,244


10,980


264


2%

General and administrative

949


3,703


(2,754)


-74%

Total operating expenses

25,490


27,570


(2,080)


-8%

OPERATING INCOME BEFORE INCOME TAXES

(632)


39,178


(39,810)


-102%

Provision for income taxes

(18)


(44)


26


59%

NET OPERATING INCOME

(650)


39,134


(39,784)


-102%









Net realised loss on investments








Portfolio company investments

(3,277)


(23,858)


20,581


86%

Foreign currency translations

1,812


4,028


(2,216)


-55%

Derivative agreements

(536)


3,781


(4,317)


-114%

Total net realised loss on investments

(2,001)


(16,049)


14,048


88%









NET REALISED (LOSS) EARNINGS

(2,651)


23,085


(25,736)


-111%









Net unrealised appreciation on investments








Portfolio company investments

17,542


98,331


(80,789)


-82%

Foreign currency translations

11,660


(35,226)


46,886


133%

Derivative agreements

(3,609)


(435)


(3,174)


-730%

Total net unrealised appreciation on investments

25,593


62,670


(37,077)


-59%









NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ("NET EARNINGS")

22,942


85,755


(62,813)


-73%

















NM = Not Meaningful
















 

EUROPEAN CAPITAL LIMITED

OTHER FINANCIAL INFORMATION

Six Months Ended 30 June 2012, 31 December 2011 and 30 June 2011

(in thousands)


Six Months Ended


Six Months Ended

30 June 2012 Versus

31 December 2011


30 June 2011


Six Months Ended

30 June 2012 Versus

30 June 2011



30 June 2012


31 December 2011





%




%















New Investments:














Senior Debt

89,269


-


89,269


100%


-


89,269


100%

Subordinated debt

2,713


212


2,501


NM


-


2,713


100%

Convertible Bond

-


223


(223)


-100%


6,300


(6,300)


-100%

Preferred Equity

5


-


5


100%


10,053


(10,048)


-100%

Common Equity

3,001


2,874


127


4%


-


3,001


100%

Total

94,988


3,309


91,679


NM


16,353


78,635


481%















Add-on Financing for Acquisitions

83,725


297


83,428


NM


-


83,725


100%

Add-on Financing for Recapitalisations

11,263


3,012


8,251


274%


16,353


(5,090)


-31%

Total

94,988


3,309


91,679


NM


16,353


78,635


481%















Realisations:














Principal Prepayments

47,751


47,688


63


0%


75,824


(28,073)


-37%

Payment of Accrued Payment-in-kind Interest and Dividends and Original Issue Discount

6,261


14,338


(8,077)


-56%


17,614


(11,353)


-64%

Sale of Equity Investments

-


1,293


(1,293)


-100%


-


-


100%

Sale of Loans

1,494


15,992


(14,498)


-91%


21,046


(19,552)


-93%

Total

55,506


79,311


(23,805)


-30%


114,484


(58,978)


-52%















Appreciation, Depreciation, Gains and Losses:














Gross Realised Gains

-


419


(419)


100%


-


-


NM

Gross Realised Losses

(276)


(13,627)


13,351


98%


(15,618)


15,342


98%

Portfolio Net (Losses) Gains

(276)


(13,208)


12,932


98%


(15,618)


15,342


98%

Foreign Currency

1,812


(9,335)


11,147


119%


4,028


(2,216)


-55%

Derivative Agreements

(3,385)


(289)


(3,096)


NM


3,781


(7,166)


-190%

Extinguishment of debt

(152)


-


(152)


100%


(8,240)


8,088


98%

Net Realised Losses

(2,001)


(22,832)


20,831


91%


(16,049)


14,048


88%















Gross Unrealised Appreciation of Portfolio Investments

72,856


40,142


32,714


81%


133,965


(61,109)


-46%

Gross Unrealised Depreciation of Portfolio Investments

(56,779)


(158,510)


101,731


64%


(53,870)


(2,909)


-5%

Reversal of Prior Period Unrealised (Depreciation)














Appreciation Upon Realisation

1,465


16,413


(14,948)


-91%


18,236


(16,771)


-92%

Net Unrealised Depreciation of Portfolio Investments

17,542


(101,955)


119,497


117%


98,331


(80,789)


-82%

Foreign Currency

11,660


23,294


(11,634)


-50%


(35,226)


46,886


133%

Derivative Agreements

(3,609)


(164)


(3,445)


NM


(435)


(3,174)


NM

Net Unrealised Depreciation of Investments

25,593


(78,825)


104,418


132%


62,670


(37,077)


-59%












-



Net Gains, Losses, Appreciation and Depreciation

23,592


(101,657)


125,249


123%


46,621


(23,029)


-49%















Other Financial Data:














Net Asset Value

649,678


626,736


22,942


4%


714,831


(65,153)


-9%

Financial Liabilities

434,579


439,017


(4,438)


-1%


429,685


4,894


1%

Asset Coverage Ratio

249%


243%






266%





Debt to Equity Ratio

0.7 x


0.7 x






0.6 x





Credit Quality:














Weighted Average Effective Interest Rate on Debt Investments

2.1%


6.5%


-4.4%


-68%


8.9%


-6.8%


-76%

Loans on Non-Accrual at Cost

263,429


244,947


18,482


8%


199,985


63,444


32%

Loans on Non-Accrual at Fair Value

60,483


39,940


20,543


51%


65,190


(4,707)


-7%

Non-Accrual Loans at Cost as a Percentage of Total Loans

24.9%


23.0%






17.3%





Non-Accrual Loans at Fair Value as a Percentage of Total Loans

8.2%


5.6%






7.8%





Non-Accrual Loans at Fair Value as a Percentage of Non-Accruing Loans at Cost

23.0%


16.3%






32.6%





Return on Equity:














LTM Net Operating Income Return on Average Equity at Cost

1.1%


4.2%






5.8%





LTM Realised Earnings Return on Average Equity at Cost

-1.0%


1.1%






0.2%





LTM Earnings Return on Average Equity

-9.8%


-0.4%






20.4%





Current Half Year Net Operating Income Return on Average Equity at Cost Annualised

-0.1%


2.2%






6.2%





Current Half Year Realised Earnings Return on Average Equity at Cost Annualised

-0.4%


-1.5%






3.6%





Current Half Year Earnings Return on Average Equity Annualised

7.1%


-26.2%






25.2%



















NM = Not Meaningful












NA = Not Applicable


























 

Static Pool

EUROPEAN CAPITAL LIMITED

STATIC POOL INFORMATION

Portfolio Statistics for Investments Made in Each of the Following Years

(in thousands)














Portfolio statistics  (1) (15)


2005


2006


2007


2008


2012


Aggregate














IRR at Fair Value of All Investments(2) (14)


11.8%


5.8%


(1.4)%


(0.7)%


8.8%


2.1%

IRR of Exited Investments  (3) (14)


14.4%


8.5%


1.6%


(0.5)%


0.0%


6.3%

IRR of Exited Portfolio Companies  (14)


14.6%


9.5%


9.4%


(0.5)%


0.0%


9.7%

IRR at Fair Value of Equity Investments Only  (2) (4) (5) (14)


4.8%


9.0%


(14.0)%


(50.1)%


0.0%


(0.3)%

IRR of Exited Equity Investments Only  (3) (4) (5) (14)


21.1%


24.1%


(45.1)%


0.0%


0.0%


(16.4)%

IRR of Exited Portfolio Companies' Equity Only  (4) (5) (14)


21.1%


34.4%


18.7%


0.0%


0.0%


28.8%

IRR at Fair Value of All One Stop Buyout®Investments(2) (14) 


(16.6)%


10.2%


(19.3)%


0.0%


0.0%


0.0%

IRR at Fair Value of Current One Stop Buyout®Investments (2) (14)


(18.5)%


8.9%


(9.8)%


0.0%


0.0%


3.3%

IRR of Exited One Stop Buyout®Investments (3) (14)


6.9%


16.9%


(94.0)%


0.0%


0.0%


(20.5)%

Committed Investments  (14)

240,673

1,242,200

1,517,015

333,927

83,725

3,322,552

Total Exits and Prepayments of Committed Investments  (14)

223,645

908,174

683,258

83,041

-

1,898,118

Total Interest, Dividends and Fees Collected  (14)

81,216

184,550

322,108

77,297

-

665,172

Total Net Realised Gains (Loss) on Investments

11,750

(55,611)

(65,397)

(27,797)

-

(137,055)

Current Cost of Investments

16,804

402,512

847,303

247,356

54,966

1,568,941

Current Fair Value of Investments

1,690

322,635

450,427

196,091

56,387

1,027,230

Current Fair Value of Investments as a % of Total Investments at Fair Value


0.2%


31.4%


43.8%


19.1%


5.5%


100.0%

Net Unrealised Depreciation  (16)

(15,114)

(79,877)

(396,876)

(51,265)

1,421

(541,711)

Non-Accruing Loans at Cost

9,212

28,470

188,994

36,552

-

263,228

Non-Accruing Loans at Fair Value

1,690.00

19,434

16,304

23,055

-

60,483

Equity Interest at Fair Value (4)

-

187,285

85,205

2,092

-

274,582

Debt to Adjusted EBITDA  (4) (7) (8) (9) (12)


10.9


4.1


6.3


5.4


4.2


5.3

Interest Coverage  (4) (9) (12)


1.7


7.8


6.6


3.4


4.0


6.2

Debt Service Coverage  (4) (9) (12)


0.7


1.8


5.1


2.1


4.0


3.4

Average Age of Companies (4) (12)


13


56


48


42


45


49

Diluted Ownership Percentage (4) (13)


51.1%


66.7%


12.6%


0.4%


0.4%


26.7%

Average Revenue  (4) (10) (12)

34,233

234,182

306,021

214,196

1,133,405

301,886

Average Adjusted EBITDA  (4) (7) (12)

2,481

27,708

56,439

37,858

144,122

48,586

Total Revenues(4) (10)

1,200,003

5,005,442

13,441,200

1,397,918

22,114,919

43,159,482

Total Adjusted EBITDA  (4) (7)

205,723

451,463

2,331,386

228,573

2,092,077

5,309,222

% Senior Loans  (4) (9) (11)


0.0%


20.8%


34.2%


0.0%


100.0%


26.9%

% Loans with Lien(4) (9) (11)


100.0%


100.0%


100.0%


100.0%


100.0%


100.0%

Majority Owned Portfolio Companies ("MOPC")



2005-2008
Static Pools Aggregate


Number of MOPC



8


Total Revenues (10)


672,274


Total Gross Profits(10)


323,172


Total Adjusted EBITDA  (7)


83,733


Total Capital Expenditure(10)


11,651


Total Current European Capital Investment in MOPC At Fair Value


337,922


Total Current European Capital Investment in MOPC At Cost Basis


484,738


Total Current European Capital Debt Investment in MOPC At Fair Value


106,338


Total Current European Capital Debt Investment in MOPC At Cost Basis


147,750


Diluted Ownership Percentage of European Capital in MOPC(13)



72.8%


Total Cash


76,940


Total Assets


747,456


Total Debt


508,100


Total Third Party Debt at Cost


359,908


Total Shareholders' Equity (16)


239,357



Static pool classification is based on the year the initial investment was made.  Subsequent add-on investments are included in the static pool year of the original investment.  There were no new investments made in 2009 to 2011.

(1)    Assumes investments are exited at current US GAAP fair value.
(2)    Includes fully exited investments of existing portfolio companies.
(3)    Excludes investments in Structured Products.
(4)    Excludes equity investments that are the result of conversions of debt and warrants received with the issuance of debt.
(5)    Majority Owned Portfolio Company ("MOPC") investments represents investments in which European Capital, or its affiliates, have a fully diluted ownership  percentage of 50% or more or has over 50% board representation at the portfolio company.
(6)    Adjusted EBITDA may reflect certain adjustments to the reported EBITDA of a portfolio company for non-recurring, unusual or infrequent items or other pro-forma items or events to normalize current earnings which a buyer may consider in a change in control transactions.  These adjustments may be material and are highly subjective in nature.  Portfolio company reported EBITDA is for the most recently available twelve months, or when appropriate, the forecasted twelve months or current annualized run-rate.
(7)    For portfolio companies with a nominal Adjusted EBITDA amount, the portfolio company's maximum debt leverage is limited to 15 times Adjusted EBITDA.
(8)    Excludes investments in which we own only equity.
(9)    For the most recent twelve months, or when appropriate, the forecasted twelve months.
(10)  As a percentage of our total debt investments.
(11)  Weighted average based on fair value.
(12)  Weighted average based on fair value of equity investments.
(13)  Non euro-denominated amounts are retranslated at the exchange rate ruling at the date of original investment.
(14)  Non euro-denominated balances, other than those referred to in (14), are retranslated at the exchange rate ruling at the balance sheet date.
(15)  Balance Sheet appreciation (depreciation) of investments excluding foreign exchange revaluation.
(16)  Calculated as the estimated enterprise value of the MOPC's less the cost basis of any outstanding debt of the MOPC's.

IMPORTANT DISCLOSURES

NAV

Any valuation information relating to the portfolio companies of European Capital stated or referred to in this release has been determined by the Board of European Capital in good faith, on a basis consistent with past practice and for the purposes of complying with its reporting obligations under applicable laws.

Forward-looking statements

This document may contain "forward-looking statements."  By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances.  Many of these risks and uncertainties relate to factors beyond European Capital's control or which cannot be estimated precisely.  These factors include, but are not limited to, uncertainties associated with the timing of transaction closings, changes in interest rates, availability of transactions, changes in regional, national or international economic conditions, and changes in the conditions of the industries in which European Capital has made investments.  Actual outcomes and results may therefore differ materially from any outcomes or results expressed or implied by any such forward-looking statements.

Performance data quoted above represents past performance of European Capital.  Past performance does not guarantee future results and the investment return and principal value of an investment in European Capital will likely fluctuate.  Additionally, European Capital's current performance may be lower or higher than the performance data quoted above.

Basis of preparation

This interim management statement has been prepared to provide further transparent information about European Capital and should not be relied on by any person for any other purpose.  Certain financial information in this interim management statement is based on unaudited management accounts.  Nothing in this document is intended to be, or should be construed as, a profit forecast.

ABOUT EUROPEAN CAPITAL

European Capital is an investment company for pan-European equity, mezzanine and senior debt investments with €1.2 billion in assets under management.  European Capital is a wholly-owned affiliate of American Capital, Ltd ("American Capital").  It is managed by European Capital Financial Services (Guernsey) Limited ("ECFSG" or the "Investment Manager"), a wholly-owned affiliate of American Capital.  The Investment Manager has offices in London and Paris.  As of 30 June 2012 the Investment Manager had 5 investment teams with 21 investment professionals and employed 26 support staff.  European Capital and its affiliate, American Capital, will consider senior and mezzanine debt investment opportunities from 10 million to 40 million in either euros or sterling and up to 400 million for One Stop Buyouts®.  For further information, please refer to www.EuropeanCapital.com.

ABOUT AMERICAN CAPITAL

American Capital is a publicly traded private equity firm and global asset manager.  American Capital, both directly and through its asset management business, originates, underwrites and manages investments in middle market private equity, leveraged finance, real estate and structured products.  American Capital manages $17 billion of assets, including assets on its balance sheet and fee earning assets under management by affiliated managers, with $100 billion of total assets under management (including levered assets).  From its seven offices in the U.S. and Europe, American Capital and its affiliate, European Capital, will consider investment opportunities from $10 million to $500 million.  For further information, please refer to www.AmericanCapital.com.

Contact: European Capital Financial Services Limited                    + 44 207 539 7000

Ira Wagner, President
Juan Carlos Morales Cortes, Director
Richard Smith, Finance Director

SOURCE European Capital Limited



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