Allied Capital was a

private equity In the field of finance, the term private equity (PE) refers to investment funds, usually limited partnerships (LP), which buy and restructure financially weak companies that produce goods and provide services. A private-equity fund is both a t ...

investment firm and mezzanine capital lender providing debt and equity capital for

leveraged buyout A leveraged buyout (LBO) is one company's acquisition of another company using a significant amount of borrowed money ( leverage) to meet the cost of acquisition. The assets of the company being acquired are often used as collateral for the loa ...

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 strate ...

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

Washington, DC ) , image_skyline = , image_caption = Clockwise from top left: the Washington Monument and Lincoln Memorial on the National Mall, United States Capitol, Logan Circle, Jefferson Memorial, White House, Adams Morgan ...

with offices in

New York City New York, often called New York City or NYC, is the most populous city in the United States. With a 2020 population of 8,804,190 distributed over , New York City is also the most densely populated major city in the Un ...

. Allied invested primarily in

middle-market companies Authorities provide differing definitions of the middle-market or mid-market companies. While some authorities look to revenue generated by companies to define the middle market, other sources regard either asset size or number of employees as a be ...

in the business services, financial services,

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 a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but t ...

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 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 of Lower Manhattan in New York City. It is by far the world's largest stock exchange by market capitalization of its listed ...

. 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 constant ...

Allied and Short Sellers

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

hedge fund A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction, and risk management techniques in an attempt to improve performance, such as s ...

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 value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the ...

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 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 th ...

it held. However, it did not issue any fines or penalties, and Allied settled 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 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. Goldman and Allied created AGILE Fund I, LLC, a new special purpose vehicle to acquire $170 million of

and mezzanine capital 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 (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to start-up company, startups, early-stage, and emerging companies that have been deemed to have high growth poten ...

and private equity fund 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