Allied Capital
Encyclopedia
Allied Capital is a private equity
investment firm and mezzanine capital
lender providing debt and equity capital for leveraged buyout
s, acquisitions and restructurings of established businesses. Allied operates as a Business Development Company
, a form of publicly traded private equity
company and is among the largest BDCs.
Allied invests primarily in middle-market companies in the business services, financial services
, consumer products industrial
, health care, retail and energy sectors.
The firm is headquartered in Washington, DC with offices in New York City
.
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
.
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
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.
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 2008, Allied came under wider criticism for aggressive accounting policies.
with Goldman Sachs
. Goldman and Allied created AGILE Fund I, LLC, a new special purpose vehicle to acquire $170 million of private equity
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
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.
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
investment firm and mezzanine capital
Mezzanine capital
Mezzanine capital, in finance, refers to a 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...
lender providing debt and equity capital for leveraged buyout
Leveraged buyout
A leveraged buyout occurs when an investor, typically financial sponsor, acquires a controlling interest in a company's equity and where a significant percentage of the purchase price is financed through leverage...
s, acquisitions and restructurings of established businesses. Allied operates as a Business Development Company
Business Development Company
A Business Development Company is a form of publicly traded private equity in the United States created by Congress in 1980 as amendments to the Investment Company Act of 1940...
, a form of publicly traded private equity
Publicly traded private equity
Publicly traded private equity refers to an investment firm or investment vehicle, which makes investments conforming to one of the various private equity strategies, and is listed on a public stock exchange.There are fundamentally two separate opportunities that private equity firms...
company and is among the largest BDCs.
Allied invests primarily in middle-market companies in the business services, financial services
Financial services
Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...
, consumer products industrial
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
, health care, retail and energy sectors.
The firm is headquartered in Washington, DC with offices in New York City
New York City
New York is the most populous city in the United States and the center of the New York Metropolitan Area, one of the most populous metropolitan areas in the world. New York exerts a significant impact upon global commerce, finance, media, art, fashion, research, technology, education, and...
.
History
Allied Capital Corporation was founded in 1958 and completed its first public offering of stockInitial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
in 1960 on the OTC
Over-the-counter (finance)
Within the derivatives markets, many products are traded through exchanges. An exchange has the benefit of facilitating liquidity and also mitigates all credit risk concerning the default of a member of the exchange. Products traded on the exchange must be well standardised to transparent trading....
. In 2001, Allied was listed on the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
. Allied's stock was repeatedly noted for a high dividend yield
Dividend yield
The dividend yield or the dividend-price ratio on a company stock is the company's total annual dividend payments divided by its market capitalization, or the dividend per share, divided by the price per share. It is often expressed as a percentage...
.
Allied and Short Sellers
Between 2002 and 2008, David Einhorn, the manager of Greenlight Capital, a hedge fundHedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
engaged in heavy short selling
Short selling
In finance, short selling is the practice of selling assets, usually securities, that have been borrowed from a third party with the intention of buying identical assets back at a later date to return to that third party...
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
Accountancy
Accountancy is the process of communicating financial information about a business entity to users such as shareholders and managers. The communication is generally in the form of financial statements that show in money terms the economic resources under the control of management; the art lies in...
and valuation
Valuation (finance)
In finance, valuation is the process of estimating what something is worth. Items that are usually valued are a financial asset or liability. Valuations can be done on assets or on liabilities...
of illiquid securities
Market liquidity
In business, economics or investment, market liquidity is an asset's ability to be sold without causing a significant movement in the price and with minimum loss of value...
it held. However, it did not issue any fines or penalties, and Allied settled without admitting or denying the allegations.
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 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 transactionPrivate equity secondary market
In finance, the private equity secondary market refers to the buying and selling of pre-existing investor commitments to private equity and other alternative investment funds....
with Goldman Sachs
Goldman Sachs
The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
. Goldman and Allied created AGILE Fund I, LLC, a new special purpose vehicle to acquire $170 million of private equity
Private equity
Private equity, in finance, is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange....
and mezzanine capital
Mezzanine capital
Mezzanine capital, in finance, refers to a 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...
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
Venture capital is financial capital provided to early-stage, high-potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business model in high technology industries, such as...
and private equity fund
Private equity fund
A private equity fund is a collective investment scheme used for making investments in various equity 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.
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.External links
- Allied Capital (company website)