Allied Capital Slumps on Q2 Loss, To Continue Asset Sales

(Reuters) – Allied Capital Corp (ALD.N), a provider of financing to small and mid-sized businesses, posted its sixth straight quarterly loss yesterday, and said it will continue to sell its portfolio assets, sending its shares down as much as 14 percent.

Allied, which had about $1.75 billion of debt outstanding as at June 30, said it “agreed in principle” with its lenders to restructure its debt agreements.

The company expects the debt restructuring to result in significantly increased costs, pressuring profitability and hampering its ability to pay dividend for an “extended period” of time.

The business development company, which in February defaulted on a credit line, had suspended its dividend in March.

Allied said it continues to default on certain covenants under its revolving line of credit and private notes.

“Until the restructuring is completed, this debt remains subject to acceleration,” the company said.

“We are evaluating opportunities to raise new third party capital to manage ourselves,” Chief Executive John Scheurer said in a conference call with analysts.

Allied, which sold or had repayments on portfolio investments that generated cash proceeds of $346 million in the second quarter, said it was focused on selling assets in its portfolio to generate capital to improve its liquidity and reduce debt load.

“The majority of this quarter’s asset sales have been completed under distress conditions in a very difficult market,” Scheurer said.

The company said the proceeds from the assets sold or refinanced represented about 94 percent of the aggregate fair value of these assets as of March 31.

CEO Scheurer said the company was evaluating further cost savings of all types, which may include job cuts.

Business development companies like Allied and bigger rival American Capital Ltd (ACAS.O), which make loans to businesses in return for equity stakes, are facing shrinking investment portfolios and finding it increasingly difficult to raise capital in the current environment.

Allied was involved in a long public battle with hedge fund manager David Einhorn, who has shorted the business lender’s stock, questioning the values it assigned to assets and sustainability of its dividend.

WOES CONTINUE IN Q2

For the second quarter, the company posted a loss of $29.1 million, or 16 cents a share, compared with a year-earlier loss of $102.2 million, or 59 cents per share.

Net realized losses rose seven-fold to $126.1 million in the quarter ended June 30.

Net investment income fell to $18.2 million, or 10 cents a share from $63.9 million, or 37 cents a share a year earlier.

Total operating expenses for the quarter were $63.7 million compared with $68 million sequentially.

Analysts were looking for a profit of 19 cents a share, excluding items, according to Reuters Estimates.

Allied Capital said it has reduced new investment activity to conserve capital and reduce outstanding debt.

Shares of the company were trading down 13 percent at $3.37 in afternoon trade on the New York Stock Exchange. The stock traded as low as 58 cents in February.

By Archana Shankar
(Editing by Dinesh Nair)