Billionaire investor John Paulson is buying about a 13 percent stake in American Capital as the business development company gets a much-needed capital infusion to restructure debt, sending its shares up 14 percent.
Paulson is in the spotlight after U.S. securities regulators sued Goldman Sachs, alleging fraud over certain debt instruments tailor-made to the hedge fund manager's requirements. Paulson was not charged.
American Capital's $295 million stock offering to institutional investors, including hedge fund Paulson & Co. Inc., was priced at $5.06 per share, a discount of 5 percent to the stock's close Friday.
The company will sell about 58.3 million common shares, of which 43.7 million shares are being bought by Paulson.
Following the closure of the share transaction, Paulson & Co. will become the largest shareholder in American Capital, according to Thomson Reuters data.
The U.S. Securities and Exchange Commission alleged that Paulson & Co. worked with Goldman Sachs in creating a collateralized debt obligation, and stood to benefit as its value fell, costing investors more than $1 billion.
Paulson manages $32 billion and correctly predicted that the housing market would falter.
With the share issue, the number of American Capital's outstanding shares increases by 20 percent to 339.2 million.
American Capital, which has been trying to restructure $2.4 billion of debt, expects to use the proceeds from the offering for investment and lending activities as well as to repay debt, it said in a statement.
"There has been fear around the debt restructuring and this deal solidifies the hopes around the restructuring being done," analyst Greg Mason of Stifel Nicolaus said.
American Capital's pro forma cash balance is approaching $1.4 billion, which should provide the company with significant flexibility with respect to a deleveraging of its balance sheet, analyst Christopher Harris of Wells Fargo said.
American Capital, which was removed from the Standard & Poor's 500 index in February last year, had said that as part of a tentative deal with the lenders it will pledge substantially all of its assets as collateral.
However, in spite of restructuring, the company may still have to monetize investments and pay down the defaulted debt for the next several years, analyst Mason said.
Analyst Harris also expects American Capital to generate about $230 million through a public offering of one of its portfolio companies, Mirion Technologies.
The offering, under an existing shelf registration, is expected to close on April 22, the provider of financing to small and mid-sized businesses said.
Shares of the Bethesda, Maryland-based company were up 4 percent at $5.53 in afternoon trade on Nasdaq. The stock opened up more than 14 percent at $6.08.
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