Allied Capital was a private equity investment firm and

mezzanine capital In finance, mezzanine capital is any subordinated debt or preferred equity instrument that represents a claim on a company's assets which is senior only to that of the common shares. Mezzanine financings can be structured either as debt (typicall ...

lender providing debt and equity capital for leveraged buyouts, acquisitions and restructurings of established businesses. Allied operated as a

Business Development Company A Business Development Company ("BDC") is a form of unregistered closed-end investment company in the United States that invests in small and mid-sized businesses. This form of company was created by the US Congress in 1980 in the amendments to th ...

, a form of publicly traded private equity company, and was among the largest BDCs. The firm was headquartered in Washington, DC with offices in New York City. Allied invested primarily in middle-market companies in the business services,

financial services Financial services are the Service (economics), economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit-card companies, insurance companies, acco ...

, consumer products 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. Allied's stock was repeatedly noted for a high dividend yield.

Allied and Short Sellers

Between 2002 and 2008, David Einhorn, the manager of Greenlight Capital, a hedge fund engaged in heavy short selling 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 measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. Accounting, which has been called the "languag ...

and valuation of illiquid securities 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 A Ponzi scheme (, ) is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are comin ...

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 Sachs () is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered at 200 West Street in Lower Manhattan, with regional headquarters in London, Warsaw, Bangalore, H ...

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

special purpose vehicle A special-purpose entity (SPE; or, in Europe and India, special-purpose vehicle/SPV; or, in some cases in each EU jurisdiction, FVC, financial vehicle corporation) is a legal entity (usually a limited company of some type or, sometimes, a limited ...

to acquire $170 million of private equity 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 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