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New Accounting Rule Could Hurt American Capital Strategies (ACAS)
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The Wall Street Journal had a piece today discussing possible writedowns at American Capital Strategies (Nasdaq: ACAS). The Journal says that American Capital Strategies has been placing full value on loans it has made as other investors in the same deal have already slashed the values.
The new accounting rule governing the use of market values for financial assets could force American Capital to bring its valuations down, and that could lead to write-downs. ACAS holds nearly $6 billion of high-interest loans it has made to medium-size companies, typically as part of leveraged-buyout transactions.
Under the new rule, companies need to place more emphasis on what someone else would pay for that asset if it were sold today. Until the end of last year, American Capital based the value of many of its investments on internal models and/or original transaction costs.
American Capital started to apply the new rule in its first quarter. Financial results for the period are scheduled to be released this Wednesday. Any write-downs in the quarter may be larger than many expected. [jt]
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