-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SWLktdbckf0kkjCpzIeh/pn+CFCzh9Uw9rA2O/NAFctzTuA/tO55wdeVbtup7/Ep UbPo1ONgHxlIva3K5xO4jw== 0000902664-10-001242.txt : 20100303 0000902664-10-001242.hdr.sgml : 20100303 20100303132401 ACCESSION NUMBER: 0000902664-10-001242 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20100303 DATE AS OF CHANGE: 20100303 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ALLIED CAPITAL CORP CENTRAL INDEX KEY: 0000003906 IRS NUMBER: 521081052 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-47983 FILM NUMBER: 10652541 BUSINESS ADDRESS: STREET 1: 1919 PENNSYLVANIA AVENUE NW CITY: WASHINGTON STATE: DC ZIP: 20006 BUSINESS PHONE: 2023311112 MAIL ADDRESS: STREET 1: 1919 PENNSYLVANIA AVENUE NW STREET 2: 1666 K STREET NW CITY: WASHINGTON STATE: DC ZIP: 20006 FORMER COMPANY: FORMER CONFORMED NAME: ALLIED CAPITAL LENDING CORP DATE OF NAME CHANGE: 19931116 FORMER COMPANY: FORMER CONFORMED NAME: ALLIED LENDING CORP DATE OF NAME CHANGE: 19920703 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: Centaurus Capital LP CENTRAL INDEX KEY: 0001297966 IRS NUMBER: 000000000 STATE OF INCORPORATION: X0 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 11 STANHOPE GATE CITY: LONDON STATE: X0 ZIP: W1K 1AN BUSINESS PHONE: 020 7479 5020 MAIL ADDRESS: STREET 1: 11 STANHOPE GATE CITY: LONDON STATE: X0 ZIP: W1K 1AN SC 13D 1 p10-0638sc13d.txt ALLIED CAPITAL CORP SECURITIES & EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- SCHEDULE 13D* (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13D-1(A) AND AMENDMENTS THERETO FILED PURSUANT TO 13D-2(A) Allied Capital Corporation ------------------------------------------------------ (Name of Issuer) Common Stock, $0.0001 par value ------------------------------------------------------ (Title of Class of Securities)) 01903Q108 ------------------------------------------------------ (CUSIP NUMBER) Paul Leary c/o Centaurus Capital Ltd 33 Cavendish Square London, UK W1G OPW Tel: +44 (0) 20 7852 3830 ------------------------------------------------------ (Name, address and telephone number of person authorized to receive notices and communications) February 25, 2010 ------------------------------------------------------ (Date of event which requires filing of this statement)) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. NOTE: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 10 Pages) - ------------------------------------------------------------------------------- The information required in the remainder of this cover page shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 01903Q108 13D Page 2 of 10 Pages - ------------------------------------------------------------------------------- (1) NAME OF REPORTING PERSONS Centaurus Capital LP - ------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions) (a) [x] (b) [ ] - ------------------------------------------------------------------------------- (3) SEC USE ONLY - ------------------------------------------------------------------------------- (4) SOURCE OF FUNDS (see instructions) OO - ------------------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - ------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION United Kingdom - ------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER -0- SHARES ______________________________________________________________ BENEFICIALLY (8) SHARED VOTING POWER 9,510,887 OWNED BY ______________________________________________________________ EACH (9) SOLE DISPOSITIVE POWER -0- REPORTING ______________________________________________________________ PERSON WITH (10) SHARED DISPOSITIVE POWER 9,510,887 - ------------------------------------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 9,510,887 - ------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (see instructions) [ ] - ------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.3% - ------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON (see instructions) PN - ------------------------------------------------------------------------------- CUSIP No. 01903Q108 13D Page 3 of 10 Pages - ------------------------------------------------------------------------------- (1) NAME OF REPORTING PERSONS Centaurus Capital Limited - ------------------------------------------------------------------------------- (2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (see instructions) (a) [x] (b) [ ] - ------------------------------------------------------------------------------- (3) SEC USE ONLY - ------------------------------------------------------------------------------- (4) SOURCE OF FUNDS (see instructions) OO - ------------------------------------------------------------------------------- (5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - ------------------------------------------------------------------------------- (6) CITIZENSHIP OR PLACE OF ORGANIZATION United Kingdom - ------------------------------------------------------------------------------- NUMBER OF (7) SOLE VOTING POWER -0- SHARES ______________________________________________________________ BENEFICIALLY (8) SHARED VOTING POWER 9,510,887 OWNED BY ______________________________________________________________ EACH (9) SOLE DISPOSITIVE POWER -0- REPORTING ______________________________________________________________ PERSON WITH (10) SHARED DISPOSITIVE POWER 9,510,887 - ------------------------------------------------------------------------------- (11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 9,510,887 - ------------------------------------------------------------------------------- (12) CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES (see instructions) [ ] - ------------------------------------------------------------------------------- (13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.3% - ------------------------------------------------------------------------------- (14) TYPE OF REPORTING PERSON (see instructions) CO - ------------------------------------------------------------------------------- CUSIP No. 01903Q108 13D Page 4 of 10 Pages - ------------------------------------------------------------------------------- Item 1. Security and Issuer. This statement relates to the ordinary shares, par value $0.0001 per share (the "Shares"), of Allied Capital Corporation, a Maryland corporation (the "Company"). The Company's principal executive offices are located at 1919 Pennsylvania Avenue NW, Washington, D.C., 20006. Item 2. Identity and Background. (a) This Statement is filed by: (i) Centaurus Capital LP, a limited partnership organized under the laws of the United Kingdom ("Centaurus"), which serves as investment manager to Centaurus International Risk Arbitrage Master Fund Limited ("CIRAF"), Centaurus/Lyxor International Risk Arbitrage Fund Limited ("Lyxor"), Centaurus Small and Mid Cap International Risk Arbitrage Master Fund Limited ("SMax" and together with CIRAF and Lyxor, the "Funds"), with respect to the Shares directly owned by the Funds; and (ii) Centaurus Capital Limited, a corporation organized under the laws of the United Kingdom ("CCL"), which serves as the general partner to Centaurus, with respect to the Shares owned by the Funds. The foregoing persons are hereinafter sometimes collectively referred to as the "Reporting Persons." (b) The address of the principal business and principal office of Centaurus and CCL is 33 Cavendish Square, 16th Floor, London, W1G OPW, United Kingdom. (c) The principal business of each of the Reporting Persons is the management of investment funds and activities related thereto. (d) None of the Reporting Persons has, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the Reporting Persons has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and, as a result of such proceeding, was, or is subject to, a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or State securities laws or finding any violation with respect to such laws. (f) Centaurus is a limited partnership organized under the laws of the United Kingdom. CCL is a corporation organized under the laws of the United Kingdom. Schedule A attached hereto sets forth the information required by Instruction C of the instructions to Schedule 13D. CUSIP No. 01903Q108 13D Page 5 of 10 Pages - ------------------------------------------------------------------------------- Item 3. Source and Amount of Funds and Other Consideration. The Shares purchased were acquired with working capital of the Funds in open market transactions at an aggregate cost (excluding commissions, if any) of approximately $40,300,000. Item 4. Purpose of the Transaction. The Reporting Persons acquired the Shares for investment purposes in the ordinary course of business, because they believed that the Shares, when purchased, were undervalued and represented an attractive investment opportunity. On February 8, 2010, the Reporting Persons sent a letter to the Company expressing its opinions with regards to Ares Capital Corporation's offer to buy the Company. The Reporting Persons believe that the offer, under its current form, does not represent the best interest of the Company's shareholders as it does not reflect either the strategic M&A value of the Company or its standalone future growth prospects. A copy of the letter is attached hereto as Exhibit 2 and is incorporated herein by reference. The Reporting Persons intend to review their investment in the Company on a continuing basis and have engaged and will continue to engage in discussions with management of the Company, the board of directors of the Issuer (the "Board"), other shareholders of the Company and/or other relevant parties concerning matters with respect to the Reporting Persons' investment in the Shares, including, without limitation, the present merger plans with Ares Capital Corporation, business, operations, governance, management and long-term strategy of the Company. Except as set forth herein or as would occur upon completion of any of the actions discussed herein, the Reporting Persons have no present plan or proposal that would relate to or result in any of the matters set forth in subparagraphs (a)-(j) of Item 4 of Schedule 13D. Depending on various factors, including, without limitation, the outcome of any discussions referenced above, the Company's financial position and strategic direction, actions taken by the Board, price levels of the Shares, other investment opportunities available to the Reporting Persons, conditions in the securities market and general economic and industry conditions, the Reporting Persons may in the future take such actions with respect to its investment in the Company as it deems appropriate, including, without limitation, purchasing additional Shares, selling some or all of its Shares, engaging in short selling of or any hedging or similar transactions with respect to the Shares, voting for or against and expressing support for or against any proposals of the Board or other shareholders of the Company and/or otherwise changing their intention with respect to any and all matters referred to in Item 4 of Schedule 13D. Item 5. Interest in Securities of the Issuer. A. Centaurus Capital LP (a) As of the date hereof, Centaurus may be deemed the beneficial owner of 9,510,887 Shares held by the Funds. Percentage: Approximately 5.3% as of the date hereof. The percentages used herein and in the rest of the Schedule 13D are calculated based upon 179,940,040 Shares outstanding, which reflects the number of Shares outstanding, as of February 25, 2010, as reported in the Issuer's Form 10-K filed on February 26, 2010. (b) 1. Sole power to vote or direct vote: 0 2. Shared power to vote or direct vote: See item (a) above. 3. Sole power to dispose or direct the disposition: 0 4. Shared power to dispose or direct the disposition: See item (a) above. (c) The transactions in the Shares within the last sixty days, which were all in the open market unless otherwise noted, CUSIP No. 01903Q108 13D Page 6 of 10 Pages - ------------------------------------------------------------------------------- are set forth in Schedule B, and are incorporated herein by reference. (d) No person other than the Reporting Persons and the Funds are known to have the right to receive, or the power to direct the receipt of dividends from, or proceeds from the sale of, such shares of the Shares. (e) Not applicable. B. Centaurus Capital Limited. (a) As of the date hereof, CCL, as the General Partner of Centaurus, may be deemed the beneficial owner of the 9,510,887 Shares held by the Funds. Percentage: Approximately 5.3% as of the date hereof. (b) 1. Sole power to vote or direct vote: 0 2. Shared power to vote or direct vote: See item (a) above. 3. Sole power to dispose or direct the disposition: 0 4. Shared power to dispose or direct the disposition: See item (a) above. (c) The transactions in the Shares within the last sixty days, which were all in the open market unless otherwise noted, are set forth in Schedule B, and are incorporated herein by reference. (d) No person other than the Reporting Persons and the Funds are known to have the right to receive, or the power to direct the receipt of dividends from, or proceeds from the sale of, such shares of the Shares. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. Other than the Joint Filing Agreement attached as Exhibit 1 hereto, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 hereof and between such persons and any person with respect to any securities of the Company, including but not limited to transfer or voting of any other securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, divisions of profits or loss, or the giving or withholding of proxies. Item 7. Materials to be Filed as Exhibits. Exhibit 1: Joint Filing Agreement as required by Rule 13d-1(k)(1) under the Act. Exhibit 2: Letter to the Issuer dated February 8, 2010. CUSIP No. 01903Q108 13D Page 7 of 10 Pages - ------------------------------------------------------------------------------- SIGNATURES After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. DATED: March 3, 2010 CENTAURUS CAPITAL LP CENTAURUS CAPITAL LIMITED By: Centaurus Capital Limited, its General Partner By: /s/ Paul Leary - -------------------------------- Name: Paul Leary By: /s/ Paul Leary Title Director ------------------------------- Name: Paul Leary Title Director CUSIP No. 01903Q108 13D Page 8 of 10 Pages - ------------------------------------------------------------------------------- Schedule A DIRECTORS AND EXECUTIVE OFFICERS OF CERTAIN REPORTING PERSONS The following sets forth the name, position, address, principal occupation and citizenship of each director and executive officer of the applicable Reporting Persons (the "Instruction C Persons"). To the best of the Reporting Persons' knowledge, (i) none of the Instruction C Persons during the last five years has been convicted in a criminal proceeding (excluding traffic violations or other similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws and (ii) none of the Instruction C Persons owns any Shares or is party to any contract or agreement as would require disclosure in this Schedule 13D. CENTAURUS CAPITAL LIMITED Bernard Oppetit serves as director and Chairman of CCL. His business address is 33 Cavendish Square, 16th Floor, London, W1G OPW, United Kingdom. His principal occupation is serving as Chairman of CCL. Mr. Oppetit is a citizen of France. Randel Freeman serves as director and Chief Investment Officer of CCL. His business address is 33 Cavendish Square, 16th Floor, London, W1G OPW, United Kingdom. His principal occupation is serving as Chief Investment Officer of CCL. Mr. Freeman is a citizen of the United States. Paul Leary serves as director and Chief Operation of Officer of CCL. His business address is 33 Cavendish Square, 16th Floor, London, W1G OPW, United Kingdom. His principal occupation is serving as Chief Operations Officer of CCL. Mr. Leery is a citizen of the United Kingdom. Cecilia McAnulty serves as director of CCL. Her business address is 33 Cavendish Square, 16th Floor, London, W1G OPW, United Kingdom. Her principal occupation is serving as Head of Credit of CCL. Ms. McAnulty is a citizen of the United Kingdom. CUSIP No. 01903Q108 13D Page 9 of 10 Pages - ------------------------------------------------------------------------------- Schedule B TRANSACTIONS IN THE SHARES BY THE REPORTING PERSON DURING THE PAST 60 DAYS Unless otherwise indicated, all trades were effected in the open market through brokers. Centaurus International Risk Arbitrage Master Fund Limited DATE TRANSACTION TYPE NUMBER OF SHARES PRICE PER SHARE ($)* - ---- ---------------- ---------------- -------------------- 01/20/10 Purchase 791,100.00 4.45 01/21/10 Purchase 483,587.00 4.29 01/22/10 Purchase 571,935.00 4.21 01/25/10 Purchase 605,983.00 4.21 01/26/10 Purchase 51,988.00 4.17 01/27/10 Purchase 331,382.00 4.30 01/27/10 Purchase 54,502.00 4.32 01/28/10 Purchase 907,418.00 4.29 01/28/10 Purchase 52,040.00 4.29 01/29/10 Purchase 649,770.00 4.26 02/01/10 Purchase 673,818.00 4.22 02/16/10 Purchase 101,583.00 4.01 02/17/10 Purchase 13,362.00 4.02 02/17/10 Purchase 7,713.00 4.02 02/18/10 Purchase 600,486.00 4.11 02/19/10 Purchase 94,460.00 4.12 02/22/10 Purchase 352,608.00 4.20 02/23/10 Purchase 394,693.00 4.15 02/25/10 Purchase 108,764.00 4.12 03/01/10 Purchase 472,600 4.23 03/02/10 Purchase 19,700 4.25 Centaurus/Lyxor International Risk Arbitrage Fund Limited DATE TRANSACTION TYPE NUMBER OF SHARES PRICE PER SHARE ($)* - ---- ---------------- ---------------- -------------------- 01/20/10 Purchase 208,900.00 4.45 01/21/10 Purchase 127,697.00 4.29 01/22/10 Purchase 151,026.00 4.21 01/25/10 Purchase 160,017.00 4.21 01/26/10 Purchase 13,728.00 4.17 01/27/10 Purchase 14,188.00 4.36 01/27/10 Purchase 89,367.00 4.30 01/27/10 Purchase 14,698.00 4.32 01/28/10 Purchase 240,117.00 4.29 01/28/10 Purchase 14,034.00 4.29 01/29/10 Purchase 175,230.00 4.26 02/01/10 Purchase 181,714.00 4.22 02/05/10 Sale (100,957.00) 3.73 02/11/10 Purchase 35,047.00 3.85 02/16/10 Purchase 26,017.00 4.01 02/17/10 Purchase 46,548.00 4.04 02/17/10 Purchase 3,538.00 4.02 02/17/10 Purchase 2,087.00 4.02 02/18/10 Purchase 159,045.00 4.11 02/19/10 Purchase 25,018.00 4.12 02/22/10 Purchase 93,392.00 4.20 CUSIP No. 01903Q108 13D Page 9 of 10 Pages - ------------------------------------------------------------------------------- 02/23/10 Purchase 104,538.00 4.15 02/24/10 Purchase 9,970.00 4.10 02/25/10 Purchase 29,436.00 4.12 Centaurus Small and Mid Cap International Risk Arbitrage Master Fund Limited DATE TRANSACTION TYPE NUMBER OF SHARES PRICE PER SHARE ($)* - ---- ---------------- ---------------- -------------------- 02/08/10 Purchase 121,800.00 3.81 02/09/10 Purchase 6,600.00 3.77 02/12/10 Purchase 21,600.00 3.88 02/16/10 Purchase 165,000.00 3.99 02/22/10 Purchase 32,000.00 4.19 * Including commissions. EXHIBIT 1 JOINT FILING AGREEMENT PURSUANT TO RULE 13D-1(k)1 The undersigned acknowledge and agree that the foregoing statement on Schedule 13D is filed on behalf of each of the undersigned and that all subsequent amendments to this statement on Schedule 13D shall be filed on behalf of each of the undersigned without the necessity of filing additional joint filing agreements. The undersigned acknowledge that each shall be responsible for the timely filing of such amendments and for the completeness and accuracy of the information concerning him or it contained therein, but shall not be responsible for the completeness and accuracy of the information concerning the others, except to the extent that he or it knows or has reason to believe that such information is inaccurate. Dated: March 3, 2010 CENTAURUS CAPITAL LP CENTAURUS CAPITAL LIMITED By: Centaurus Capital Limited, its General Partner By: /s/ Paul Leary - -------------------------------- Name: Paul Leary By: /s/ Paul Leary Title Director ------------------------------- Name: Paul Leary EX-99 2 p10-0638exhibit_2.txt EXHIBIT 2 PRIVATE & CONFIDENTIAL Board of Directors c/o John M. Scheurer Chief Executive Officer and President Allied Capital Corporation 1919 Pennsylvania Avenue N.W. Washington, DC 20006 February 8, 2010 Ladies and Gentlemen, Founded in 2000, Centaurus Capital ("Centaurus") is an established international fund manager based in London, United Kingdom. Through our funds, we currently own 6,564,239 common shares of Allied Capital ("Allied"), representing approximately 3.7% of the total shares outstanding. We would like to take this opportunity to express our opinions with regards to Ares Capital's ("Ares") offer to buy 100% of Allied at an exchange ratio of 0.325 shares of Ares common stock for each share of Allied common stock, as announced by Ares on October 26th, 2009. Centaurus acknowledges the efforts made by Allied's Board to find the best strategic alternative for Allied and its shareholders during a difficult year 2009, which finally resulted in a recommendation to merge Allied with fellow BDC Ares. In our view, Ares is a suitable partner candidate for Allied given its sound financial position, its experienced management team and the long-term benefits that such merger could bring to both sets of shareholders (higher portfolio diversification, larger scale, cost and revenue synergies, increased stock liquidity). Nevertheless, following the recent developments involving Allied, we strongly believe that the Ares offer, under its current form, no longer represents the best interests for Allied shareholders as it doesn't reflect either the strategic M&A value of the company or its standalone future growth prospects. Following Allied's full repayment of the senior secured private debt announced on February 1, 2010 and the recent high interest expressed by Prospect Capital ("Prospect") in a business combination with Allied (at a significant 10-15% premium to Ares' offer), we consider that Allied is today in a much stronger financial condition than at the time of the negotiations between Allied's board and Ares last year and, consequently, represents a much more attractive target for any potential acquirer. In our opinion, such an operating improvement should translate into a fairer and more compelling offer to Allied's shareholders than the one originally put forward by Ares. As it stands, the current offer is considerably more beneficial to Ares' shareholders than to Allied's, as Ares is buying Allied at a deeply discounted price (over 40% discount to Allied's NAV per share of USD6.70 as at September 30th, 2009(1)) while retaining a significant participation in the enlarged Ares/Allied entity (approximately 70%). o Improved company fundamentals: We strongly believe Ares is buying today a company with a much improved financial condition compared to last year, when negotiations around a potential combination between Allied and Ares commenced. Since October, Allied has successfully repaid in full its existing senior private debt (USD891m) through cash generated by actively selling assets, and refinancing proceeds. Following this significant deleveraging, Allied is now in a better position to focus on net investment income, earnings and dividend generation, without the added pressure of having to sell quality assets to retire costly debt. As per Allied's press release on February 1st, 2010, Allied has now total outstanding debt of USD995.5m (versus USD1.6bn as at September 30th, 2009) and cash and investments in money market and other securities of approximately USD 128m. We estimate Allied's debt/equity and asset coverage ratios are back to adequate BDC levels. Allied will now be able to tap funding markets at better terms, as demonstrated by the secured term loan of USD250m recently arranged by J.P. Morgan. o Enhanced macro outlook: Ares is opportunistically acquiring Allied at the bottom of the economic cycle. We expect Allied's portfolio to start yielding higher investment income as the US economy and capital markets recover from the recession, and asset quality of the book gradually improves. Under such scenario, we believe a standalone Allied would be able to generate stronger bottom-line earnings in the short-term, start to repay dividends and achieve higher proceeds from asset sales, which would help satisfy debt repayments and refinancings. o No control premium paid: Allied's value under Ares' current offer terms implies a 0.58X P/NAV multiple versus an average of 0.59x for selected quoted BDC peers(2). Ares is therefore neither paying a change of control premium, nor meaningfully sharing upfront with Allied's shareholders the value of the synergies (e.g. revenues, SG&A expenses, funding) to be created in the future. o Significant accretion to current Ares' shareholders: The proposed transaction will be highly accretive to Ares' shareholders on a net asset value basis, while significantly dilutive to Allied's shareholders. Based on our calculations, accretion to Ares' shareholders will be close to 20% from day one, and 35% dilutive to Allied's. We have not run numbers on an earnings basis given the lack of research analysts earnings' estimates, but, as highlighted in a recent broker's research note: "one of the most important takeaways regarding this transaction is the meaningful accretion to [Ares] core earnings - as measured by, what we believe to be, ARCC management's expectation of pro forma 2010 NOI". We believe such a meaningful accretion in both a NAV and earnings basis provides Ares with plenty of room to - --------------------- (1) Source: Allied Capital's 10Q. Ares' exchange offer valued Allied at USD3.91 per share as of close February 5th 2010. (2) Universe of peers includes American Capital, Blackrock Kelso Capital. MCG Capital, MVC Capital, Gladstone Capital and Kohlberg Capital. Market data as of close February 5th, 2010 (source: Bloomberg). NAV per share as of September 30th, 2009 (source: company reports). materially increase its offer on Allied while still achieving very attractive returns for its own shareholders. o No cash element in the consideration mix: Ares' offer is structured through a 100% share exchange, which entirely exposes Allied's shareholders to the volatility in Ares' share price. Since the announcement of the offer on October 26th, 2009, Allied's value per share based on a ratio of 0.325 Ares shares for each share of Allied has fluctuated from highs of USD4.62 to lows of USD3.22 (over 40% range). Given such a high volatility, it is recommendable that Allied shareholders receive a portion of the consideration in cash, thus decreasing the uncertainty on the final value that Allied shareholders will receive upon completion of the transaction. o Low ownership in an enlarged Ares/Allied: Under the proposed Ares merger, Allied shareholders will own approximately 30% of the enlarged Ares/Allied entity, a low participation level which materially reduces the exposure of current Allied's shareholders to the new company. o Competing offers: We believe Allied's Board should allow competing third-party proposals the opportunity to perform a due diligence on Allied, and vice-versa, as long as counter-offers represent over a 10% premium to the current Ares offer. Such a premium represents, in our view, an attractive enough initial proposition to be considered by Allied's Board on behalf of its shareholders, which will be analysed in conjunction with other qualitative and quantitative factors. * * * Ares' current exchange offer significantly undervalues the "new" Allied Capital and does not offer any control premium to its shareholders. Based on the current terms offered of 0.325 shares of Ares common stock for each share of Allied common stock, we find it very difficult to support such a merger proposal as it stands at the next shareholders' meeting in March. We believe the recent interest from Prospect, valuing Allied at a higher price than Ares, is a testimony that Allied's Board can extract more value for Allied's shareholders, and should, consequently, be considered seriously by the Board. We would welcome the opportunity to discuss the above at your earliest convenience. Very truly yours, /s/Pedro Maqueda /s/ Randel Freeman - ------------------------ --------------------------- Pedro Maqueda Randel Freeman Investment Director Chief Investment Officer cc: Gary Swidler, BofA Merrill Lynch Ian Simmonds, BofA Merrill Lynch -----END PRIVACY-ENHANCED MESSAGE-----