The Conditions of the Ares Capital-American Capital Deal

The $3.4 billion deal between American Capital Ltd. and Ares Capital Corp. is conditioned on the successful sale of American Capital Mortgage Management LLC to American Capital Agency Corp.
Malon Wilkus, American Capital Ltd. Chairman & CEO

Malon Wilkus, American Capital Ltd. Chairman & CEO

New York—It wasn’t exactly ignored, but it wasn’t highlighted either. In the hoopla yesterday about the $3.4 billion acquisition of American Capital Ltd. by Ares Capital Corp., the deal that could have easily gotten lost was American Capital’s sale of American Capital Mortgage Management LLC (ACMM) to American Capital Agency Corp. (Nasdaq: AGNC) for $562 million. The larger transaction in fact is conditioned on the successful completion of the sale of American Capital Mortgage Management LLC to American Capital Agency Corp.

Through a wholly owned affiliate asset management portfolio company, American Capital Ltd. manages both American Capital Mortgage Investment Corp. (Nasdaq: MTGE) and American Capital Agency Corp., as well as American Capital Senior Floating Ltd., which total about $10 billion of net book value.

To be precise about the transaction, per the separate announcement by MTGE, MTGE will acquire its external manager, American Capital MTGE Management LLC (MTGE Manager), a wholly owned portfolio company of American Capital Ltd. AGNC in turn will acquire American Capital Mortgage Management LLC, the parent company of MTGE Manager.

Once the transaction closes, likely in the third quarter, MTGE Manager, as an indirect subsidiary of AGNC, will continue to provide investment management services to MTGE on an external basis under the existing fee structure. AGNC intends to retain ACMM’s current employee base following the transaction.

Substantial changes to MTGE’s board were also announced. Six directors have resigned (Morris Davis, John Erickson, Samuel Flax, Larry Harvey, Prue Larocca and Alvin Puryear), leaving the MTGE board composed only of CEO & President Gary Kain, with Robert Couch and Randy Dobbs as independent directors, and Dobbs as board chair. Erickson and Flax will remain as executive vice president & CFO and as executive vice president & secretary, respectively, through the closing date of the transaction.

American Capital Agency Corp. is a mortgage REIT that invests primarily in agency securities for which the principal and interest payments are guaranteed by a U.S. government agency such as GNMA or U.S. government-sponsored enterprise such as FNMA or FHLMC.

American Capital Mortgage Investment Corp. is a mortgage REIT that invests in, finances and manages a leveraged portfolio of agency mortgage investments, non-agency mortgage investments, other mortgage-related investments and healthcare-related real estate investments.

Image courtesy of American Capital Ltd.