Interim Management Statement

European Capital Limited Reports Net Operating Income of euro 19 Million and Net Earnings of euro 58 Million

Dec 01, 2010, 15:15 ET from European Capital Limited

ST. PETER PORT, Guernsey, Dec. 1, 2010 /PRNewswire-FirstCall/ -- European Capital Limited ("European Capital") today issues an Interim Management Statement announcing net operating income ("NOI") for the nine months ended 30 September 2010 of euro 19 million.  Net earnings less appreciation (depreciation) ("Net Realised Loss") for the nine months were euro 2 million and net earnings were euro 58 million.

Q3 2010 YTD FINANCIAL SUMMARY

  • euro 19 million NOI
  • euro 68 million net unrealised appreciation on investments
  • euro (43) million net realised loss on investments
  • euro 58 million net earnings
    • euro 354 million increase over the same period of 2009
  • euro 281 million of cash proceeds from realisations
  • euro 306 million reduction in debt
    • Including euro 131 million of secured debt due in 2011
  • euro 582 million net asset value ("NAV")
    • euro 55 million, or 10% increase over Q4 2009

"Our NAV grew by euro 55 million since December 2009," said Ira Wagner. "That is a total return on equity of 10% since the low point of the financial crisis in Q4 2009.  We believe that the economy is continuing to recover, which should allow our portfolio to improve and for European Capital to experience continued growth in our book value."

Net Operating Income ("NOI")

NOI for the nine month period to September 2010 was euro 19 million, compared to euro 30 million for the same period of 2009.  The fall in NOI is driven by a combination of lower operating income from a reduced investment portfolio, lower rate indices and provisions made against accrued income for certain investment assets, in addition to higher spreads on the secured multicurrency revolving credit facility.

Net Realised Loss

Net Realised Loss was a loss of euro 2 million for the nine month period to September 2010, compared to a loss of euro 35 million for the same period of 2009.  The euro 2 million loss was primarily driven by a loss on the write off of fully depreciated assets of euro 58 million.

Net Earnings

Net Earnings in the nine month period to September 2010 were a gain of euro 58 million, compared to a loss of euro 296 million in the same period of 2009.  This reflects appreciations in portfolio valuations driven by improved portfolio performance and overall market performance.

Net Asset Value ("NAV")

European Capital's NAV as of 30 September 2010 was euro 583 million, an increase of euro 55 million or 10% higher than the 31 December 2009 NAV of euro 528 million.

PORTFOLIO LIQUIDITY AND PERFORMANCE

Since inception, European Capital has invested euro 3.3 billion in 91 portfolio companies.  European Capital has realised euro 1.7 billion from the portfolio since inception, including senior debt syndications.  It has exited fully 32 portfolio companies, realising an aggregate of euro 998 million comprising:

  • euro 666 million of principal repayments;
  • euro 124 million from loan syndications and sales;
  • euro 98 million of collections of PIK notes and dividends, and;
  • euro 110 million from sales of equity.  

These exits achieved an aggregate IRR of 9.9%.  Exits from all equity investments have achieved a 28.8% IRR.  The aggregate IRR for all investments is 0.4%.(1)  

European Capital's portfolio as of 30 September 2010 at fair market value was euro 1,033 million, with an average size of euro 17 million per portfolio company.  European Capital's largest investment represents 9.6% of total investment assets.  The ten largest investments represent 50.8% of total investment assets.  Non-accrual loans represent 5.5% of total loans at fair market value.  

During the nine month period to September 2010, European Capital:

  • Realised proceeds of euro 281 million, compared with euro 9 million in the same period of 2009.  The proceeds were at an average of 2.1% above the prior quarter's valuations of the realised investments.  The realisations proceeds included:
    • euro 131 million and a euro 14 million equity gain from the sale of Spotless Group, resulting in a 21% annual equity return and a 15% annual mezzanine rate of return from the sale;
    • euro 74 million and a euro 10 million equity gain from the sale of GO Voyage, resulting in a 19% annual equity return and a 16% annual mezzanine rate of return from the sale;
    • euro 48 million repayment of a debt investment in Inspicio resulting in a 13% annual mezzanine rate of return.
  • Invested euro 1.4 million in existing portfolio companies, compared with euro 0.5 million in the same period of 2009.

Since the low point of the financial crisis in Q4 2009, European Capital has increased its book value by euro 55 million or a 10% total return.  In the same period there have been strong realisations allowing for debt to be paid down by euro 306 million, a significant delevering of the balance sheet.

(1) Our investments are carried at fair value in accordance with the 1940 Act and SFAS No. 157, Fair Value Measurements ("SFAS No. 157"), which is codified in FASB ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820").

CAPITAL RESOURCES

At 30 September 2010, European Capital had debt outstanding of euro 473 million with asset coverage of 223%, and for the third quarter a weighted average interest rate of 7.5%.

In December 2009, European Capital amended its secured multicurrency revolving credit facility into a single amortising term facility, removed the ability to drawdown additional funds and amended certain representations, covenants and events of default.  There are no remaining amortization requirements left under the facility, which is due in full on 31 December 2011.  At 30 September 2010, the amount outstanding under this loan was euro 220 million (including accrued interest and programme fee).

Interest on the borrowings under this facility is paid quarterly and is charged at an appropriate inter-bank rate depending on the currency in which the borrowing is made and a margin of 2.50%.  In addition, there is a programme fee that accrues quarterly and is paid on the date on which all advances outstanding will be repaid in full.  The programme fee is based on the level of advances outstanding at the start of each quarter.  The programme fee is accruing at 5%, the lowest level in the pricing grid.

In March 2010, European Capital paid down all outstanding borrowings under its unsecured revolving credit facility with The Royal Bank of Scotland plc and Bank of Montreal, London Branch and the facility was terminated.

As at 30 September 2010, European Capital had euro 135 million (including accrued interest) of investment grade secured senior notes outstanding.  These floating rate notes are collateralised by certain assets of European Capital which had a fair value as at 30 September 2010 of euro 211 million.  The secured notes currently have a floating rate of the bank's cost of funds plus a margin of 1.05%; the margin increases to 1.50% in February 2011 and 2.00% in February 2013.  The secured notes are due in full in July 2018.

European Capital has issued three senior unsecured notes in private placement offerings.  The aggregate amount outstanding under these notes is euro 109 million (including accrued interest).  The Series 2006-1 notes for euro 52 million have a fixed interest rate of 6.80% until January 2012 and thereafter a floating rate of EURIBOR plus 2.75% until the maturity of the notes in January 2022.  The Series 2007-I notes of $37.5 million have a fixed interest rate of 8.02% until July 2012 and thereafter a floating rate of LIBOR plus 2.75% until the maturity of the notes in July 2022.  The Series 2007-II notes of $37.5 million have a fixed interest rate of 7.62% until July 2012 and thereafter a floating rate of LIBOR plus 2.75% until the maturity of the notes in July 2022.

European Capital has an unsecured revolving credit facility with American Capital, with a total commitment of $53 million.  At 30 September 2010, the amount outstanding under this facility was euro 9 million (including accrued interest).  Interest on the borrowings under this facility is charged at a floating rate of US LIBOR plus a margin of 7.00% payable when the facility is repaid.  This facility matures in June 2012.

European Capital will use proceeds from liquidity events in part to cover expenses and service debt, to invest in its existing portfolio companies for organic growth and add-on acquisitions, as well as to make new mezzanine investments and One-Stop Buyouts™.

"Our balance sheet continues to strengthen," said Juan Carlos Morales Cortes.  "Our asset coverage ratio improved to 223% and debt has reduced by euro 306 million, including euro 131 million of secured debt due in 2011.  This has caused the programme fee to drop to the lowest rate available under the facility.  We continue to experience strong liquidity in the portfolio at attractive valuations, which we believe will allow us to invest in existing portfolio companies for organic growth and add-on acquisitions, as well as to make new mezzanine and second lien investments and One-Stop Buyouts."

    
    
                      EUROPEAN CAPITAL LIMITED
                     CONSOLIDATED BALANCE SHEETS
     As of 30 September 2010, 30 June 2010 and 31 December 2009
                           (in thousands)
    
    
                                                         30 September 2010
                                                        Versus 30 June 2010
                        30 September      30 June       -------------------
                             2010          2010            euro         %
                             ----          ----            ----        ---
                         (unaudited)    (unaudited)
    
    Assets
    Investments at
     fair value (Cost basis
     of euro 1,703,605,
     euro 1,884,699 and
     euro 2,007,831,
     respectively)          1,032,932     1,179,462       (146,530)      -12%
    Cash and cash
     equivalents                2,333         1,766            567        32%
    Restricted cash            13,173        31,031        (17,858)      -58%
    Interest receivable         4,096         4,928           (832)      -17%
    Other                       9,117         9,730           (613)       -6%
                            ---------     ---------       --------       ----
         Total assets       1,061,651     1,226,917       (165,266)      -13%
                            =========     =========       ========       ====
    Liabilities
     and Shareholders'
     Equity
    Debt (maturing
     within one year euro
     2,991, euro 39,972 and
     euro 163,008,
     respectively)            472,581       631,986       (159,405)      -25%
    Due to European
     Capital Financial
     Services (Guernsey)
     Limited                    1,366         2,385         (1,019)      -43%
    Other                       5,157         8,615         (3,458)      -40%
                              -------       -------       --------       ----
         Total liabilities    479,104       642,986       (163,882)      -25%
                              -------       -------       --------       ----
    Shareholders' equity:
        Share Capital         224,475       224,475              -         0%
        Share Premium              24            24              -         0%
        Undistributed
         net realised
         earnings           1,045,221     1,085,002        (39,781)       -4%
        Net unrealised
         foreign currency
         depreciation        (101,190)      (68,770)       (32,420)      -47%
        Net unrealised
         depreciation of 
         investments         (585,983)     (656,800)        70,817        11%
                             --------      --------         ------        ---
         Total shareholders'
          equity              582,547       583,931         (1,384)        0%
                              -------       -------         ------       ----
         Total liabilities
          and shareholders'
          equity            1,061,651     1,226,917       (165,266)      -13%
                            =========     =========       ========       ====
    
    
                                                         30 September 2010
                                                      Versus 31 December 2009
                                        31 December   -----------------------
                                            2009       euro              %
                                            ----       ----             ---
    
    Assets
    Investments at fair value (Cost
     basis of euro 1,703,605, euro
     1,884,699 and euro 2,007,831,
     respectively)                         1,222,525   (189,593)        -16%
    Cash and cash equivalents                 36,097    (33,764)        -94%
    Restricted cash                           36,519    (23,346)        -64%
    Interest receivable                        5,752     (1,656)        -29%
    Other                                     12,943     (3,826)        -30%
                                              ------     ------         ----
         Total assets                      1,313,836   (252,185)        -19%
                                           =========   ========         ====
    Liabilities and Shareholders'
     Equity
    Debt (maturing within one year
     euro 2,991, euro 39,972 and
     euro 163,008, respectively)             778,368   (305,787)        -39%
    Due to European Capital
     Financial Services (Guernsey)
     Limited                                   1,663       (297)        -18%
    Other                                      5,900       (743)        -13%
                                               -----       ----         ----
         Total liabilities                   785,931   (306,827)        -39%
                                             -------   --------         ----
    Shareholders' equity:
        Share Capital                        224,475          -           0%
        Share Premium                              -         24         100%
        Undistributed net realised
         earnings                          1,050,521     (5,300)         -1%
        Net unrealised foreign currency
         depreciation                        (93,182)    (8,008)         -9%
        Net unrealised depreciation of
         investments                        (653,909)    67,926          10%
                                            --------     ------         ----
         Total shareholders' equity          527,905     54,642          10%
                                             -------     ------         ----
         Total liabilities and
          shareholders' equity             1,313,836   (252,185)        -19%
                                           =========   ========         ====
    
    
                       EUROPEAN CAPITAL LIMITED
                 CONSOLIDATED STATEMENTS OF OPERATIONS
         Three and Nine Months Ended 30 September 2010 and 2009
                            (in thousands)
                             (unaudited)
    
    
                                                            Three Months Ended
                                  Three Months Ended           30 September
                                     30 September            2010 Versus 2009
                                     ------------            ----------------
                                   2010            2009         euro      %
                                   ----            ----         ----     ---
    
    OPERATING INCOME:
    Interest and
     dividend income             20,674          35,047       (14,373)   -41%
    Fee and other
     income                         705             390           315     81%
                                 ------          ------       -------    ----
        Total operating
         income                  21,379          35,437       (14,058)   -40%
                                 ------          ------       -------    ----
    OPERATING EXPENSES:
    Interest                     10,024          11,888        (1,864)   -16%
    Management fee and
     reimbursed
     expenses                     4,158           4,909          (751)   -15%
    General and
     administrative               1,308           3,746        (2,438)   -65%
                                 ------          ------        ------    ----
        Total operating
         expenses                15,490          20,543        (5,053)   -25%
                                 ------          ------        ------    ----
    OPERATING INCOME
     BEFORE INCOME
     TAXES                        5,889          14,894        (9,005)   -60%
    Provision for
     income taxes                   (29)            (46)           17     37%
                                  -----          ------        ------    ----
    NET OPERATING
     INCOME                       5,860          14,848        (8,988)   -61%
                                  -----          ------        ------    ----
    
    Net realised
     foreign currency
     gain (loss)                  5,448          (6,397)       11,845    185%
    Net realised loss
     on investments             (51,087)        (67,005)       15,918     24%
                                -------         -------        ------     ---
        Total net realised
         loss                   (45,639)        (73,402)       27,763     38%
                                -------         -------        ------     ---
    
                                -------         -------        ------     ---
    NET REALISED LOSS           (39,779)        (58,554)       18,775     32%
                                -------         -------        ------     ---
    
    Net unrealised
     foreign currency
     (depreciation) 
     appreciation               (32,420)        (20,211)      (12,209)   -60%
    Net unrealised
     appreciation 
     (depreciation)
     of investments              70,817          82,228       (11,411)   -14%
                                 ------          ------       -------    ----
        Total net
         unrealised
         appreciation
         (depreciation)          38,397          62,017       (23,620)   -38%
                                 ------          ------       -------    ----
    
                                 ------           -----        ------   -----
    (DECREASE) INCREASE
     IN NET ASSETS
     RESULTING FROM
     OPERATIONS ("NET
     (LOSS) EARNINGS")           (1,382)          3,463        (4,845)  -140%
                                 ======           =====        ======   =====
    
    
                                                             Nine Months Ended
                                   Nine Months Ended            30 September
                                      30 September            2010 Versus 2009
                                      ------------            ----------------
                                   2010             2009        euro       %
                                   ----             ----        ----      ---
    
    OPERATING INCOME:
    Interest and
     dividend income             76,976          102,839        (25,863)  -25%
    Fee and other
     income                       1,109              738            371    50%
                                 ------          -------        -------   ----
        Total operating
         income                  78,085          103,577        (25,492)  -25%
                                 ------          -------        -------   ----
    OPERATING EXPENSES:
    Interest                     38,788           46,929         (8,141)  -17%
    Management fee and
     reimbursed
     expenses                    13,370           17,314         (3,944)  -23%
    General and
     administrative               6,693            9,253         (2,560)  -28%
                                 ------           ------        -------   ----
        Total operating
         expenses                58,851           73,496        (14,645)  -20%
                                 ------           ------        -------   ----
    OPERATING INCOME
     BEFORE INCOME
     TAXES                       19,234           30,081        (10,847)  -36%
    Provision for
     income taxes                  (109)            (108)            (1)   -1%
                                 ------           ------        -------   ----
    NET OPERATING
     INCOME                      19,125           29,973        (10,848)  -36%
                                 ------           ------        -------   ----
    
    Net realised
     foreign currency
     gain (loss)                 22,478          (29,347)        51,825   177%
    Net realised loss
     on investments             (43,496)         (36,001)        (7,495)  -21%
                                -------          -------         ------   ----
        Total net realised
         loss                   (21,018)         (65,348)        44,330    68%
                                -------          -------         ------    ---
    
                                 ------          -------         ------    ---
    NET REALISED LOSS            (1,893)         (35,375)        33,482    95%
                                 ------          -------         ------    ---
    
    Net unrealised
     foreign currency
     (depreciation)
     appreciation                (8,008)          44,561        (52,569) -118%
    Net unrealised
     appreciation 
     (depreciation)
     of investments              67,926         (305,592)       373,518   122%
                                 ------         --------        -------   ----
        Total net
         unrealised
         appreciation
         (depreciation)          59,918         (261,031)       320,949   123%
                                 ------         --------        -------   ----
    
                                 ------         --------        -------   ----
    (DECREASE) INCREASE
     IN NET ASSETS
     RESULTING FROM
     OPERATIONS ("NET
     (LOSS) EARNINGS")           58,025         (296,406)       354,431   120%
                                 ======         ========        =======   ====

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.  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 euro 1.1 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 September 2010 the Investment Manager had 5 investment teams with 22 investment professionals and employed 26 support staff.  European Capital and its affiliates will consider investment opportunities from euro 5 million to euro 25 million.  For further information, please refer to http://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.  Founded in 1986, American Capital has $18 billion in capital resources under management and eight offices in the U.S., Europe and Asia.  American Capital and its affiliates will consider investment opportunities from $5 million to $100 million.  For further information, please refer to http://www.AmericanCapital.com/.

EUROPEAN CAPITAL FINANCIAL SERVICES, LTD.

London

25 Bedford Street

London WC2E 9ES

United Kingdom

+44 (0)207 539 7000

+44 (0)207 539 7001 Fax


Paris Branch

37 Avenue Pierre 1er de Serbie

75008 Paris

France

+33 (0)1 40 68 06 66

+33 (0)1 40 68 06 88 Fax



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



RELATED LINKS

http://www.europeancapital.com