The future of publicly listed private equity firm Allied Capital is in doubt after the firm reported a net $1 billion loss for 2008, driven in part by declines in the value of its investment portfolio.
Allied’s audit firm expressed “substantial doubt” about the firm’s ability to continue as a going concern in its 2008 audit opinion, Allied said in filings with the US Securities and Exchange Commission.
It came as Allied’s chief executive officer William Walton stepped down from the firm, to be replaced by John Scheurer, managing director of the company. Walton will continue in his role as board chairman.
“During this critical time for the financial services industry, with the increasingly challenging environment, we believe that separating the executive chairman and CEO roles to expand our executive leadership team will enable me to focus on my responsibilities as chairman and John to devote his full attention to the management of our business,” Walton said in a statement.
Allied reported a net loss of about $1 billion for 2008, or $6.01 per share, as compared to net income of $153.3 million or 99 cents per share in 2007.
The losses were driven in part by realised losses of $129.4 million for the year, compared to net realised gains of $268.5 million in 2007. The firm also reported net unrealised depreciation of $1.2 billion due to losses in the value of the portfolio.
Allied, which reported $1.1 billion in new investments in 2008, has reduced new investment activity to conserve capital and repay debt, the firm said. Allied also is pursuing asset sales to generate capital for debt repayment.
The firm defaulted on about $1.2 billion of debt after violating a covenant on its $170 million revolving credit facility. The revolver default triggered a default on about $1 billion in outstanding private notes.
The lenders, which include Bank of America, have the ability to bring forward full payment of the debt immediately, but “neither the lenders nor the private noteholders have accelerated repayment of the company’s obligations”. Allied has been negotiating with the lenders and the noteholders since December.
Allied’s portfolio company Ciena Capital, a real estate lender, collapsed into bankruptcy in September. At the time, the firm said it expected to record a “substantial” write down on its investment in the company.
The firm, based in Washington, D.C., has more than $4 billion in assets. Allied invested in more than 100 companies with more than $12 billion in revenue since it went public in 1960. Allied manages private funds focused on mid-market investments with committed capital totaling $4.9 billion.