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Allied Deals with Goldman

Allied Capital Corp. and Goldman Sachs have reached an investment agreement, whereby Goldman agrees to invest at least $125 million in future Allied funds. In additional, Goldman will purchase $170 million in existing Allied private equity and debt investments. 

PRESS RELEASE

Allied Capital Corporation (NYSE:ALD) announced today an investment agreement between Goldman Sachs Private Equity Group (Goldman Sachs) and Allied Capital that includes commitments by Goldman Sachs to invest at least $125 million in future investment vehicles managed by Allied Capital. In addition, Goldman Sachs will purchase $170 million in existing private equity and debt investments from Allied Capital and will have future opportunities to invest in Allied Capital affiliates, or vehicles managed by them, and co-invest alongside Allied Capital in the future, subject to various terms and conditions.

As part of this investment agreement with Goldman Sachs, Allied Capital has agreed to sell a pro-rata strip of private equity and debt investments to AGILE Fund I, LLC (AGILE), a new Allied Capital managed fund in which Goldman Sachs owns substantially all of the interests, for a total transaction value of $170 million.

Allied Capital is expected to realize a net gain and dividend income from the sale of its investments of approximately $15 million, net of transaction and other costs. The purchase price of the equity investments represented a 9% premium to Allied Capital's fair value for these investments at September 30, 2007. The majority of the pro-rata equity and debt sale closed simultaneously with the execution of the investment agreement. The sales of the remaining assets are expected to close by the end of the first quarter of 2008. Allied Capital is selling to AGILE 13.7% of Allied Capital's equity investments in 23 of its buyout portfolio companies and 36 of its minority equity portfolio companies for a total purchase price of $109 million.

“Over the past year Allied Capital has launched two key initiatives, the Unitranche Fund with GE Commercial Finance and the Allied Capital Senior Debt Fund, in order to expand our reach into middle market private equity investing and to diversify our managed capital base to include both public and private sources of capital,” said Bill Walton, Chairman and CEO of Allied Capital. “Our investment agreement with Goldman Sachs furthers both of these goals. We look forward to enhancing our business opportunities with this very seasoned and experienced investment partner.”

The equity investments being sold had a fair value at September 30, 2007 of $100 million. In addition, Allied Capital is selling approximately $60 million in debt investments at cost, representing 7.3% of Allied Capital's unitranche, second lien and subordinated debt investments in the 23 buyout investments included in the equity sale. Allied Capital will act as the managing member of AGILE, and will be entitled to an incentive allocation subject to certain performance benchmarks. Allied Capital owns the remaining interests in AGILE not held by Goldman Sachs.

“This transaction is the first step in a strategic relationship with the team from Allied. We believe that our two firms share a similar culture and investment philosophy and we believe this transaction should create collective opportunities to invest capital at attractive returns,” said Harold Hope, Managing Director, Goldman Sachs Private Equity Group.

“Throughout our extensive due diligence process, we have confirmed our view that Allied Capital has the results, investment acumen, processes and controls that we look for in our investment partners. We are excited about the team with whom we are partnering and the quality of the assets that we are acquiring,” added Kane Brenan, Managing Director, Goldman Sachs Private Equity Group.

“Investment capital and liquidity for private equity transactions has become increasingly scarce in these challenging capital markets,” said John Fruehwirth, Managing Director, Allied Capital. “Fortunately, Allied Capital has been able to develop both public and private sources of capital, including sources of managed private capital such as the investment commitments included in this agreement with Goldman Sachs, our recently launched Unitranche Fund with GE Commercial Finance, and the Allied Capital Senior Debt Fund. In this market, we believe we will have the opportunity to deploy capital at attractive return levels and that leverage has returned to reasonable levels, coupons are higher and covenants are strong,” added Fruehwirth.

In addition, as part of today's transaction, Allied Capital has also agreed to sell eleven venture capital and private equity limited partnership investments for approximately $28 million to Goldman Sachs, and is expected to realize a loss on the sale of approximately $3 million, including transaction costs. Goldman Sachs will assume the $6.5 million of unfunded commitments related to these limited partnership investments. The sales of these investments are expected to be completed by May 2008.

About Allied Capital

Allied Capital is a leading business development company (BDC) in the U.S. that invests private debt and equity capital in middle market businesses nationwide. Founded in 1958 and operating as a public company since 1960, Allied Capital is celebrating 50 years of investing in and supporting the U.S. entrepreneurial economy.

Allied Capital provides long-term debt and equity capital for management and sponsor-led buyouts, and for recapitalizations, acquisitions and growth of middle market companies. Allied Capital's one-stop financing capabilities include first and second lien senior loans, unitranche debt, junior or subordinated debt and equity. Allied Capital seeks to invest in stable, less cyclical companies that produce significant free cash flow and high returns on invested capital. At September 30, 2007, the Company's private finance portfolio included investments in 110 companies that currently generate aggregate revenues of over $13 billion and employ more than 90,000 people.

Headquartered in Washington, DC, Allied Capital offers shareholders the opportunity to participate in the private equity industry through an investment in its New York Stock Exchange-listed stock. Allied Capital has paid consistent or increasing regular, quarterly cash dividends annually to shareholders since 1963. For more information, please visit www.alliedcapital.com, call Allied Capital investor relations toll-free at (888) 818-5298, or e-mail us at ir@alliedcapital.com.

About Goldman Sachs

The Goldman Sachs Private Equity Group today manages over $24 billion of committed capital, investing in private equity funds, co-investing in direct investments, and providing liquidity and capital solutions to private equity limited partners and general partners. The Goldman Sachs Private Equity Group is part of Goldman Sachs Asset Management, the asset management arm of The Goldman Sachs Group, Inc. (NYSE: GS), which managed $868 billion as of November 30, 2007. Goldman Sachs Asset Management has been providing discretionary investment advisory services since 1989 and has investment professionals in all major financial centers around the world. The company offers investment strategies across a broad range of asset classes to institutional and individual clients globally. Founded in 1869, Goldman Sachs is a leading global investment banking, securities and investment management firm.