American Capital Strategies, Ltd. (ACAS)

dhd1491 (99.10) Submitted: 8/01/07 6:52 PM : Start Price: $40.34 ACAS Score: -25.61

Why I think they're a good bet to beat the market:

--ACAS is not that highly leveraged for a private equity firm with a debt to equity ratio of about 0.9 to 1. The PE firms and hedge funds that get into trouble do so because they make big bets with tons of leverage. ACAS is actually quite conservative for a PE outfit (they are restricted by the Investment Company Act of 1940 to no more than 1:1 debt ratio if they choose to remain a BDC).

--S&P, Moody's and Fitch all have rated ACAS "investment grade". Though it's toward the lower end of investment grade, that's still very good. Despite some of the recent bad press heaped on the ratings agencies due to their miscalculation of some of the sub-prime-based debt, they do a tremendous amount of DD before issuing a rating; more than most investors, by far. I do not believe that they would issue such a rating without a good appreciation for the quality of cash flows from the companies that make up ACAS's portfolio. To me, that's incredibly important since the underlying strength of those portfolio companies provides the underpinning for ACAS' big dividend and high IRR on exits.

--The performance of the company speaks for itself. Malon Wilkus' leadership has been superb. Plus, Mr. Wilkus backs up his clear belief in his company with his own money; over $60 million of it. And he never seems to sell, at least not in the last two years of SEC filings that I looked at.

--How can you not like a company that has the dividend record that ACAS has?

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