Allied Capital restructures $1bn debt load

The business development company has staved off bankruptcy for the short term as it eases its debt load by $174m.

Allied Capital, after withstanding a $1 billion loss in 2008, has reached an agreement with lenders to restructure its debt and avoid bankruptcy for the near future. The business development company’s restructuring will eliminate $174 million of its debt, cutting the debt load to $841 million.

“With this restructuring now behind us, we will continue to focus on de-levering the balance sheet and executing our business strategy to move the company forward,” said John Scheurer, president and chief executive officer of Allied.

Allied’s private notes will be sliced into three series, with the first series totaling $253.8 million due 15 June 2010, the second series of $253.8 million due 15 June, 2011 and the third of $333.5 million due 1 April, 2012.

The company also converted its revolving credit facility into a term loan maturing 13 November 2010. Total commitments under the facility were reduced at closing to $96 million from $115 million. The company expects the $96 million commitment to be reduced to $50 million by 1 November 2009 as its $46 million of undrawn capital in the facility expires.

Allied noteholders and facility lenders were given a “blanket lien” on a “substantial” portion of the company’s assets. Under the restructured notes, Allied must apply 50 percent of all net cash proceeds from asset sales to repayment of the notes.

After the completion of the restructuring, the company will have $175 million in cash on hand, Allied said.

The restructuring process cost Allied $26 million, and the company expects to take a loss of $116 million in the third quarter for “extinguishment of debt”. The restructuring also will significantly increase the cost of capital to the company.

Allied reported a net loss of $1 billion for 2008, or $6.01 per share, as compared to net income of $153.3 million of 99 cents per share in 2007. The losses were driven by realised losses of $129.4 million for the year, and net unrealised depreciation of $1.2 billion due to losses in the value of the portfolio.

Allied has cut back on new investments to conserve cash and pay back debt, and has been selling assets to general capital.

In March, Allied’s audit firm expressed “substantial doubt” about the firm’s ability to continue as a going concern in its 2008 audit opinion. The audit opinion came as Allied’s chief executive officer William Walton stepped down and was replaced by Scheurer.

Another business development company, American Capital, has been feverishly negotiating with its lenders over its default on $2.3 billion in debt. Standard & Poor’s cut the firm’s debt deeper into junk territory in August on concerns over American Capital’s staggering $547 million second quarter losses and inability to reach agreement with lenders.