A small-business lender owned by Allied Capital filed for bankruptcy protection today, after the worth of its assets shrank amid the uncertainty in the financial markets.
Allied, which invests in middle-market businesses, said Ciena Capital’s assets have significantly deteriorated, to the point at which its assets would not cover its liabilities. Because of the insolvency, Allied will have to record a “substantial” deprecation for its Ciena investment in the third quarter.
Ciena Capital provides financing for commercial real estate and small companies’ working capital needs for up to $10 million. It changed its name from Business Loan Express in January.
In a news release on Tuesday, Allied said the problems in the financial markets, decreasing bid prices, and a fewer number of loan buyers have contributed to the lowered value of Ciena’s assets. “Ciena believes that by filing for bankruptcy protection it will be able to proceed with an orderly sale of its assets over time in more favorable market conditions in the future and thereby maximize the value of its assets and reduce costs in order to repay its debts,” Allied said.
Since Ciena has filed for Chapter 11, Allied will have to pay its lenders because it has guaranteed to pay outstanding obligations under Ciena’s revolving credit facility. Allied plans to pay approximately $320 million toward Ciena’s revolver after borrowing about $170 million from its own unsecured revolver. It will also use $150 million in cash.