Allied Capital Corp. Moves To Big Board

Goodbye Nasdaq, hello New York Stock Exchange.

Allied Capital Corp. will likely utter those very words in June, when it plans to move its stock over to the illustrious Big Board after 40 years of trading on the Nasdaq.

At first blush, it may seem as if Allied Capital, a late-stage investment firm that provides mostly mezzanine debt and equity financing to support growing companies, has chosen to jump the Nasdaq ship to disassociate itself from the overall abysmal performance of many of the issues listed – or currently in danger of being delisted – on the exchange.

However, nothing could be further from the truth, said Bill Walton, chairman and chief executive with Allied.

“There aren’t a lot of dividend-paying stocks on Nasdaq, and, as a dividend payer, we really think our stock is better suited to the NYSE,” he explained.

Indeed, last year Allied Capital paid out about $140 million worth of dividends, and expects to dish out an estimated $170 million more in dividend payments to shareholders this year, putting it in the top 5% of all issues on the NYSE in terms of aggregate dividends disbursed.

Moreover, the NYSE will likely be a better platform for Allied Capital as it will be joining the ranks of similar companies like the MeVC Draper Fisher Jurvetson Fund, which also trades on the NYSE.

Indeed, Walton was quick to disassociate Allied from certain Nasdaq-listed investment companies like CMGI and Internet Capital Group.

“We do private equity differently – we’re very interested in mezzanine finance and control buyouts and investments that produce current cash returns,” he said. “Most of the other publicly-traded VC funds focus on capital gains. While capital gains are a part of our story, they’re not the driver. The driver [for us] is the cash return we provide to shareholders.”

Allied Capital, which currently trades under the Nasdaq ticker symbol ALLC, will be listed on the NYSE under the symbol ALD starting on June 6.

Many Happy Returns

In conjunction with announcing its plans to move over to the NYSE, Allied Capital also released its first quarter financial results. Unlike most of its Nasdaq peers, however, the firm turned in a pretty good showing despite an overall downturn in the public markets.

For starters, the company reported better-than-anticipated earnings, beating analysts’ estimates by $0.08 a share. Additionally, the company said its net operating income increased 35% over Q1 2000 to $39.7 million, or $0.46 per share.

“Those numbers are critical because the interest and fee income from our portfolio are very predictable numbers,” Walton noted. “We’re just about at a point where our dividends are covered by the interest from our portfolio, which increases the certainty [that dividends will be paid].”

Not that Allied Capital’s shareholders need much reassurance. The firm, which has been paying out dividends since 1963, just recently declared its 151st consecutive quarterly dividend, paying out $0.50 a share.

“We can say, here’s a company that’s doing well in a tough economy,” Walton said. “We’ve positioned our portfolio in such a way that we have a lot of defenses against a bad economy, and investors are far more interested in that now than they were a year ago.”

All tolled, Allied Capital invested $150.8 million for the three months ended March 31, 2001, and the overall weighted average yield on the company’s portfolio was 14.3%. Comparatively, that’s currently a higher yield than most banks and commercial finance companies are turning out these days, and even slightly better than the performance of high yield portfolios, Walton said.

This last quarter wasn’t all wine and roses for the firm, however. Although the firm generally decides to back only one in every 50 companies it sees, it made a bad choice last year when it got involved in a less-than-stellar telecom deal and ended up being caught in a strong downdraft in that sector.

When asked if he thought that deal’s poor performance – which was marked down as a write-off – would hurt the firm in the long run, Walton seemed unconcerned. “In terms of our own business model, I think the thing for us to do is just to stick to our knitting and continue to finance market leaders and [good] industries,” he said. “It seems like every time we stray from that, we regret it. But we’ve learned what our strengths and weaknesses are, and that’s a good thing. For now, it’s just steady as she goes.”

Contact Robyn Kurdek.