Valuations Haunt American Capital

At American Capital's annual investor day last week, one audience member questioned the valuation of Scientific Protein.

"I'm trying to understand, as we're trying to get comfortable with valuations through the portfolio, how the debt of a company that is looking at lawsuits that could probably bankrupt it if even a fraction of them come to fruition, how that can possibly be marked at par?" the unidentified audience member asked a panel of American Capital officials, according to a webcast replay of the event.

American Capital CEO Malon Wilkus, who was in the audience and not on the panel, immediately grabbed the microphone from the questioner, according to an investor who attended the event.

Wilkus said the situation was very sad, but he called Scientific Protein a "very good company ... and we think it will do extremely well," according to the webcast.

He did point out that Scientific Protein had some insurance to cover itself from lawsuits but stopped short of saying how much.

"I think that is about all we can say about the company specifically," he said.

Wilkus eventually concluded the discussion by saying, "Getting down to the details of what is happening inside the company, with 170 companies in the portfolio, just generally doesn't make much sense for us."

And therein lies the rub with American Capital: You don't really know what's under the hood.