AGNC Investment

The Early Years

American Capital was founded by Malon Wilkus in 1986., who served as Chairperson and Chief Executive Officer until the time of the sale of American Capital in 2017. The company was headquartered in Bethesda, Maryland. It made its first investment in the equity of an employee owned middle market company in 1990. By August 1997, American Capital had facilitated approximately 18 ESOP transactions and had invested in the equity of 7 employee buyouts. Based on third party valuations and net realized gains, the return on these investments was 36% per annum prior to its IPO. American Capital went public on August 29, 1997 in a $155 million equity offering. At the time of its IPO, American Capital changed its operations and tax status to a Business Development Company . In 1998, American Capital expanded and opened additional offices in Chicago and Dallas.

Entering the New Century

By 2000, American Capital opened offices in Los Angeles and Philadelphia. It also formed an internal Operations Team headed by Gordon O’Brien, composed of former C-level executives and vice presidents who would work onsite at its portfolio companies to maximize returns. During 2001, American Capital formed an internal financial analysis and compliance team headed by Jay Beam, to perform financial due diligence for buyout investments and to provide financial and information technology advisory services to portfolio companies and to conduct internal valuations. The team had approximately 90 finance, IT and accounting personnel at its peak.

In 2005, American Capital raised €750 million of equity for European Capital Ltd. and ECAS opened offices in Paris and London. Nathalie Faure Beaulieu and Jean Eichenlaub were appointed Managing Directors. In addition in 2005, American Capital expanded its investment strategy by establishing specialized investment teams focusing on Special Situations, Syndication, Energy, Commercial Mortgage Asset Management Group, and Leverage Finance.

American Capital’s growth continued in 2006 with the establishment of a technology investment team headed by Virginia Turezyn and Andy Fillat , who were appointed Managing Directors, with offices in Boston and Palo Alto. Bob Grunewald was appointed Managing Director of the newly formed American Capital Financial Services Group. The company raised its second externally managed private equity fund, American Capital Equity I, through a novel sale of a significant portion of its private equity investments to a third-party fund that it then managed. American Capital also received investment grade ratings from Moody’s, S&P and Fitch.

In May 2006, European Capital was taken public and traded on the London Stock Exchange.

In the Spring of 2007, American Capital was included in the S&P 500 index of public companies. European Capital opened additional offices in Frankfurt and Madrid and formed specialized teams to invest in distressed debt and second lien loans.

The Great Recession

The Great Recession began at the turn of 2007, striking a blow to the world’s economies, capital markets and asset valuations in that year and in 2008. American Capital was not immune from the economic crisis affecting the U.S. and global financial and business markets. As a BDC, American Capital had to fair value its assets quarterly. Therefore, American Capital had to dramatically depreciate its assets, whether they were performing or not, in line with comparable market valuations. Performance declined, in many cases materially, at some of its portfolio companies and investments.

To address the new realities facing the company, in 2008, American Capital closed offices in Los Angeles, Palo Alto, Philadelphia and San Francisco, continuing to operate offices in Bethesda, Boston, Dallas, Providence and New York. European Capital closed offices in Frankfurt and Madrid, continuing to operate offices in London and Paris.

Also, in 2008, American Capital launched and took public American Capital Agency . Due to the dramatic depreciation of its assets, American Capital defaulted on its debt and began negotiations with its creditors. In the third quarter, American Capital terminated its regular quarterly dividend and was removed from the S&P 500 index in early 2009. European Capital, whose stock price and performance was subject to the same depreciating environment as American Capital and other financial assets during the Great Recession, was taken private by merging into American Capital during 2009.

Re-Financing a Turnaround

In April 2010, through a direct equity offering primarily with Paulsen & Co. Inc, $295 million of equity was raised. A refinancing agreement was reached with American Capital creditors in mid-2010. Under the terms of the transaction, lenders and note-holders had the option of receiving either cash or new secured debt, in each case in the full principal amount of their pre-transaction debt. Lenders and note-holders holding $1.03 billion of debt, 44% of pre-transaction debt, selected and received 100% cash for their debt, while lenders and note-holders holding $1.31 billion of debt, 56% of pre-transaction debt, elected to receive new secured loans or notes of various series. By 2011, American Capital Agency raised $4.4 billion of equity through offerings in January, March, June and November. It also initiated an IPO of newly formed American Capital Mortgage Investment Corp . American Capital continued to re-leverage its balance sheet after the Great Recession. In 2012, it refinanced its debt in June and raised $250 million of debt in August. American Capital raised $362 million of debt for its third externally managed CLO. At the same time, American Capital created American Capital Infrastructure, and an Annapolis, MD office was opened . The year 2013 allowed American Capital to form a Leveraged Finance Investment Team and a Lower Middle Market Investment Team led by Managing Directors Sean Eagle , Eugene Krichevsky , David Steinglass and Justin DuFour . In addition, American Capital launched American Capital Senior Floating . Also, S&P upgraded its rating of American Capital from BB- to B+ in August of this year. However, American Capital closed its Boston office. In January 2014, American Capital Senior Floating raised $150 million of equity through its IPO. During 2014, American Capital approved a plan to split the Company's businesses by transferring most of the Corporation's investment assets to two newly established business development companies , American Capital Growth and Income and American Capital Income . American Capital would continue primarily in the asset management business and would manage these two new BDCs

A Full Strategic Review

With the market failing to reflect support for its Spin Off plan, including lack of support from its major shareholders, and a new activist shareholder that had become the Company’s largest shareholder, American Capital announced a full strategic review of all alternatives in November 2015. On May 23, 2016, American Capital announced it had entered into a definitive agreement to sell American Capital to Ares Capital. At the same time, it announced a definitive agreement to sell American Capital Mortgage Management to American Capital Agency for $562 million, which closed on June 30, 2016. On December 15, 2016, ACAS shareholders approved the sale of American Capital to Ares Capital and the transaction was finalized on January 3, 2017. The purchase price, including the sale of American Capital Mortgage Management, totaled $4.1 billion. American Capital did not file a form 10-K for 2016, due to the approved merger with Ares Capital Corporation.

Shareholder Returns from IPO to the Sale

For those investors who bought American Capital stock in its August 29th, 1997 IPO, and held their shares through the sale of American Capital on January 3rd, 2017, they received a 14% compounded annual return including dividends . This compares favorably to the 10% return made by investors in shares of Berkshire Hathaway over the same period. However, it wasn’t just investors in its IPO who outperformed the market. For a stockholder who invested in one share of ACAS at its IPO and one share of ACAS on January first of each of the 19 years it was public, and held the shares through to the sale on January 3rd, 2017, 70% of those 20 investments would have outperformed the S&P 500 Financial Sector over the same time periods.

These results were achieved through two recessions, including the Great Recession. From the time of its IPO through 2015, American Capital produced a 16% Economic Return, that is, a 16% growth in its book value plus dividends paid. And, despite the Great Recession, the $5 billion American Capital invested in the equity of its One Stop Buyouts produced a 16% compounded annual return.