Another Summary of ACAS's Recent Status - By the Jaded Consumer

....Unrealized appreciation increased (to the tune of over eighty million dollars, dwarfing NOI) rather than decreased over the quarter, for the first time in nine quarters; ACAS is no longer losing asset value. The charts plotting unrealized appreciation and NOI against indicators of the general economy suggest that as the US economy improves, that ACAS (as previously suggested here) will likewise benefit.
Management believes a deal to end the default status of its debt obligations is near, and will close by year-end. The deal apparently involves turning the unsecured creditors into secured creditors, with ACAS' investment portfolio as collateral, and includes a principal repayment schedule over the next several years. In effect, the deal closes the unsecured revolving credit line and leaves ACAS free to open another unsecured line later on as credit conditions and ACAS' performance enable ACAS to negotiate a better deal. The result is that ACAS will make (as predicted here) the minimum dividend legally allowed to maintain ACAS' tax status, will pay down the principal, and will face a declining interest rate as ACAS continues to reduce its debt balances. In the meantime, there's no effort to force ACAS into a bankruptcy or other situation that would place ACAS in the position of a forced seller, and the impending deal looks like an invitation to continue ordinary business with the single change that the credit line will end up looking like a series of secured notes with specific maturity dates rather than an open-ended unsecured line of credit. The doomsday preached by some looks unlikely.

Initial response to the news was good: shares spiked by over $0.50 (scared shorts fleeing? interested longs rejoining now that the scare is over?), but this declined and shares now trade near $3. The repayment schedule calls for hundreds of millions in repayments, but the initial repayment chunk can be made from cash on hand and the future repayments appear nonproblematic based on ACAS' history of recovering principal through maturities, exits, and so on.

The third interesting point is this: ACAS' exit volume has improved. Although ACAS has enjoyed well over a billion dollars in exits from the beginning of the recession, the deal volume, though it dwindled over the last few quarters, has now grown. The third quarter offered $463m in proceeds. According to conference call comments, exits were at higher multiples than ACAS' entrance, but given the economy's impact on EBIDA, this doesn't mean exits were profitable; it just means that ACAS' management was able to get good value out of its inventory. ACAS' exits generated realized net losses over the quarter. Realization of losses means ACAS' unrealized losses accordingly decreased; however, the reader will note that unrealized appreciation of $86m was much larger than the $41m from reversals associated with sales, and further that these associated sales were within 1% of prior-quarter "fair value"....