Allied Capital was a

private equity Private equity (PE) is stock in a private company that does not offer stock to the general public; instead it is offered to specialized investment funds and limited partnerships that take an active role in the management and structuring of the co ...

investment firm and

mezzanine capital Mezzanine capital is a type of financing that sits between senior debt and equity in a company's capital structure. It is typically used to fund growth, acquisitions, or buyouts. Technically, mezzanine capital can be either a debt or equity ins ...

lender providing debt and equity capital for

leveraged buyout A leveraged buyout (LBO) is the acquisition of a company using a significant proportion of borrowed money (Leverage (finance), leverage) to fund the acquisition with the remainder of the purchase price funded with private equity. The assets of t ...

s, acquisitions and restructurings of established businesses. Allied operated as a Business Development Company, a form of

publicly traded private equity Publicly traded private equity (also referred to as publicly quoted private equity or publicly listed private equity) refers to an investment firm or investment vehicle, which makes investments conforming to one of the various private equity strat ...

company, and was among the largest BDCs. The firm was headquartered in

Washington, DC Washington, D.C., formally the District of Columbia and commonly known as Washington or D.C., is the capital city and Federal district of the United States, federal district of the United States. The city is on the Potomac River, across from ...

with offices in

New York City New York, often called New York City (NYC), is the most populous city in the United States, located at the southern tip of New York State on one of the world's largest natural harbors. The city comprises five boroughs, each coextensive w ...

. Allied invested primarily in

middle-market companies A middle-market or mid-market company is one that is larger than a small business and smaller than a big business. Different authorities use different metrics to compare company sizes — some look at revenue, others at either asset size or number ...

in the business services,

financial services Financial services are service (economics), economic services tied to finance provided by financial institutions. Financial services encompass a broad range of tertiary sector of the economy, service sector activities, especially as concerns finan ...

consumer products A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike an intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good. Whe ...

industrial, health care, retail and energy sectors. The company was purchased by Ares Capital in 2010.

History

Allied Capital Corporation was founded in 1958 and completed its first public offering of stock in 1960 on the OTC. In February 1997, Chairman and CEO David Gladstone resigned. In 2001, Allied was listed on the

New York Stock Exchange The New York Stock Exchange (NYSE, nicknamed "The Big Board") is an American stock exchange in the Financial District, Manhattan, Financial District of Lower Manhattan in New York City. It is the List of stock exchanges, largest stock excha ...

. Allied's stock was repeatedly noted for a high

dividend yield The dividend yield or dividend–price ratio of a share is the dividend per share divided by the price per share. It is also a company's total annual dividend payments divided by its market capitalization, assuming the number of shares is constan ...

Allied and Short Sellers

Between 2002 and 2008, David Einhorn, the manager of Greenlight Capital, a

hedge fund A hedge fund is a Pooling (resource management), pooled investment fund that holds Market liquidity, liquid assets and that makes use of complex trader (finance), trading and risk management techniques to aim to improve investment performance and ...

engaged in heavy

short selling In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common Long (finance), long Position (finance), position, where the inves ...

of Allied's stock as he tried to demonstrate that the company's valuation of its illiquid securities was inflated. This activity led to a highly publicized feud between Einhorn and the company. As early as 2003, Allied complained publicly about Einhorn's activities. Einhorn's activities in relation to Allied were also examined by the SEC to determine whether his statements about the company were intended to manipulate its stock price. In 2004, Allied came under scrutiny. In June 2007, the S.E.C. found that Allied broke securities laws relating to the

accounting Accounting, also known as accountancy, is the process of recording and processing information about economic entity, economic entities, such as businesses and corporations. Accounting measures the results of an organization's economic activit ...

and valuation of

illiquid securities In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price. Liquidity involves the trade-off between the ...

it held. However, it did not issue any fines or penalties, and Allied

settled A settler or a colonist is a person who establishes or joins a permanent presence that is separate to existing communities. The entity that a settler establishes is a settlement. A settler is called a pioneer if they are among the first settli ...

without admitting or denying the allegations.Following Clues the S.E.C. Didn’t
''The New York Times'', January 31, 2009 In 2008, Einhorn authored "Fooling Some of the people All of the Time," describing his concerns about the company's accounting practices and his encounters with the company over those years. In his book, Einhorn explains how he uncovers the fact that Allied Capital is basically run as a

ponzi scheme A Ponzi scheme (, ) is a form of fraud that lures investors and pays Profit (accounting), profits to earlier investors with Funding, funds from more recent investors. Named after Italians, Italian confidence artist Charles Ponzi, this type of s ...

and in order to keep the appearances of a valid investment proposition, Allied Capital is forced to cook the books by constantly overpricing its loans and the value of its subsidiaries. In 2008, Allied came under wider criticism for aggressive accounting policies.

The 2007-2009 Credit Crunch

As the credit markets began to slow in 2007, Allied appeared to be unaffected. In January 2008, Allied completed a structured secondary transaction with

Goldman Sachs The Goldman Sachs Group, Inc. ( ) is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many internationa ...

. Goldman and Allied created AGILE Fund I, LLC, a new

special purpose vehicle A special-purpose entity (SPE), also called a special-purpose vehicle (SPV) or a financial vehicle corporation (FVC), is a legal entity (usually a limited company of some type or, sometimes, a limited partnership) created to fulfill narrow, speci ...

to acquire $170 million of

and

interests from Allied Capital, representing 13.7% of Allied's equity portfolio. Goldman also agreed to invest $125 million in future investment vehicles managed by Allied. Allied also sold a portfolio of

venture capital Venture capital (VC) is a form of private equity financing provided by firms or funds to start-up company, startup, early-stage, and emerging companies, that have been deemed to have high growth potential or that have demonstrated high growth in ...

and

private equity fund A private equity fund (abbreviated as PE fund) is a collective investment scheme used for making investments in various equity (and to a lesser extent debt) securities according to one of the investment strategies associated with private equity. ...

interests. On September 30, 2008, Allied Capital shares fell by more than half their value as Ciena Capital, one of its portfolio companies, filed for bankruptcy.Allied Capital's End Run
Forbes, September 30, 2008

Sale to Ares Capital

In late 2009, Allied agreed to be purchased by Ares Capital. Prospect Capital submitted a competing bid in early 2010, but was rejected by Allied management. The sale to Ares was approved by shareholders on March 26, 2010, and was finalized on April 1 with Allied closing for the last time at $5 a share.

References

External links

Allied Capital
(company website) - This website is no longer a valid reference {{Authority control Private equity firms based in Washington, D.C. American companies established in 1958 Financial services companies established in 1958 Financial services companies disestablished in 2010 Financial services companies of the United States 1958 establishments in Washington, D.C. 2010 disestablishments in Washington, D.C. 2010 mergers and acquisitions