|
Allied Capital Corp. - Business Loans - Category Main Page
202-331-1112
1919
Pennsylvania, NW
Washington, DC 20006
www.alliedcapital.com.
Sales
$326
million
Business Description
As a
business development company, or BDC, Allied Capital Corporation is in the
private equity business. Specifically, we provide long-term debt and equity
capital. We believe the private equity capital markets are important to the
growth of small and middle market companies, which often have difficulty
accessing the public debt and equity capital markets because their capital
needs are too small to be attractive to the public markets or because they
are in need of long-term growth capital, which banks do not generally
provide. We believe that we are well positioned to be a source of capital
for such companies.
We have participated in the private equity business since Allied Capital was
founded in 1958. We have financed thousands of companies nationwide. We
generally invest in established, middle market companies with adequate cash
flow for debt service. We are not venture capitalists, and we generally do
not provide seed, or early stage, capital.
Our investment objective is to achieve current income and capital gains. In
order to achieve this objective, we invest in companies in a variety of
industries, non-investment grade commercial mortgage-backed securities (“CMBS”)
and collateralized debt obligation bonds and preferred shares (“CDOs”).
Private Equity Investing
As a private equity investor, we spend significant time and effort
identifying, structuring, performing due diligence, monitoring, valuing and
ultimately exiting our investments. We generally target companies in less
cyclical industries with, among other things, high return on invested
capital, management teams with meaningful equity ownership, well-constructed
balance sheets, and that have the ability to generate free cash flow. Each
investment is subject to an extensive due diligence process. It is not
uncommon for a single investment to take from two months to a full year to
complete, depending on the complexity of the transaction.
Our investment activity is primarily focused in three areas:
• Lending subordinated debt with or without equity features to middle market
companies (also known as mezzanine investing),
• Buying controlling equity stakes in middle market companies (also known as
buyout investing), and
• Investing in non-investment grade classes of commercial mortgage-backed
securities (CMBS) and collateralized debt obligations (CDO).
We have chosen these investment classes because the investments can be
structured to provide recurring cash flow to us as the investor. In addition
to earning interest income, we may earn income from management, diligence,
structuring or other fees. We may also enhance our total return through
capital gains through equity features, such as a nominal cost warrants, or
by investing in equity instruments. Net realized capital gains received over
the past twenty years as a percentage of total assets are shown in the chart
below.
Our investments in mezzanine loans, equity investments in middle market
companies, and non-investment grade tranches of CMBS and CDO pools are
generally long-term in nature and privately negotiated, and no readily
available market exists for them. This makes our investments highly illiquid
and, as a result, we cannot trade them. When we make an investment, we enter
into a long-term arrangement where our ultimate exit from that investment
may be five to ten years in the future.
We believe illiquid investments generally provide better investment returns
on average over time than do more liquid investments, such as public
equities, public debt instruments, or large syndicated senior loans, because
of the increased risk in holding such investments. Investors in illiquid
investments cannot manage risk through investment trading techniques. In
order to manage our risk, we focus on careful investment selection, thorough
due diligence, consistent monitoring and portfolio diversification. Our
investment management processes have been designed to incorporate these
tools.
We believe our business model is well suited for long-term illiquid
investing. Our balance sheet is capitalized with significant equity capital
and we use only a modest level of debt capital, which allows us the ability
to manage through difficult market conditions without the risk of liquidity
issues. Under the Investment Company Act of 1940 we are restricted to a debt
to equity ratio of approximately one-to-one. Thus, our long-term
under-leveraged capital structure is well suited for long-term illiquid
investments.
In general, we compete with a large number of financial services companies,
including specialty and commercial financial companies, commercial banks and
private equity funds. However, we primarily compete with private equity
funds because they are also focused on providing long-term debt and equity
capital to middle market companies. We believe that we have key structural
and operational advantages when compared to private equity funds.
Many private equity funds operate with a more expensive cost structure than
ours because of carried interest fees paid to the management of the funds.
In addition, our access to the public equity markets generally allows us the
opportunity to raise equity capital at a lower cost than that of private
equity funds. Our lower cost of capital may give us a pricing advantage when
competing for new investments. In addition, the perpetual nature of our
corporate structure enables us to be a better long-term partner for our
portfolio companies than a traditional private equity fund, which typically
has a limited life.
Ticker
ALD
Business Loans Providers in the Directory
Allied Capital
Bank of America
CapitalSource
CIT Group
GE Capital
Silicon Valley Bank
U.S. Bank
Wachovia
Wells Fargo
|
|
