Allied Capital Defaults on Credit Facility

(Reuters) – Buyout firm Allied Capital Corp, battered by frozen credit markets, said it was notified by its lenders of a default on its revolving credit facility, an event which could significantly hamper the firm’s liquidity.

In a filing with the U.S. Securities and Exchange Commission, Allied said a default under its revolving credit facility also constitutes default under its private notes. The company had $1.015 billion in outstanding private notes as of Feb 13.

Allied, which has been criticized for several years by activist investor David Einhorn, also said it had $50 million in outstanding borrowings, and about $120 million in outstanding letters of credit under the credit facility.

The default occurred as the company did not complete the required documents related to a Dec. 30, 2008, amendment to its credit facility.

The amendment required the company to pay first lien security interest on almost all of its assets, Allied said.

An event of default will restrict the company from borrowing under its credit facility and declaring dividends or other distributions to its shareholders.

The default also permits the lenders to accelerate repayment of all amounts due and to require Allied to have cash collateral equal to the value of all outstanding letters of credit.

According to the terms of the private notes, a default permits the holders of 51 percent or more of any issue of outstanding private notes to accelerate repayment of all amounts due thereunder.

However, the company also noted that neither its lenders nor the noteholders have asked it to speed up repayment of its obligations.

Allied shares were trading down 2.5 percent at $1.06 in early trade on the New York Stock Exchange. (Reporting by Adheesha Sarkar in Bangalore, Editing by Dinesh Nair)