<PAGE> 1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period Commission file number:
ended SEPTEMBER 30, 1996 0-22832
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ALLIED CAPITAL LENDING CORPORATION
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(exact name of Registrant as specified in its charter)
MARYLAND 52-1081052
- ----------------------- ------------------------
(State or jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
C/O ALLIED CAPITAL ADVISERS, INC.
1666 K STREET, NW
9TH FLOOR
WASHINGTON, DC 20006
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(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 331-1112
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 12 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods as the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
On November 8, 1996 there were 5,122,060 shares outstanding of the Registrant's
common stock, $0.0001 par value.
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ALLIED CAPITAL LENDING CORPORATION
FORM 10-Q INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of September 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Operations - For the Three and Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Changes in Net Assets - For the Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows - For the Nine Months Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . 10
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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PART I - Financial Information
Item 1. Financial Statements
ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except number of shares)
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
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(unaudited)
<S> <C> <C>
ASSETS
Investments at value:
Loans receivable (cost: 1996 - $46,671; 1995 - $46,451) . . . . $46,409 $46,223
Loans held for sale (cost: 1996 - $11,802; 1995 - $851) . . . . 12,554 924
------ ------
Total investments . . . . . . . . . . . . . . . . . . . 58,963 47,147
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 961 3,020
Accrued interest receivable . . . . . . . . . . . . . . . . . . . 814 732
Excess servicing asset . . . . . . . . . . . . . . . . . . . . . 4,302 3,828
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,921 753
------ ------
Total assets . . . . . . . . . . . . . . . . . . . . . . $66,961 $55,480
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . $23,325 $18,914
Accounts payable and accrued expenses . . . . . . . . . . . . . 1,285 3,012
Investment advisory fee payable . . . . . . . . . . . . . . . . 414 330
Dividends and distributions payable . . . . . . . . . . . . . . - 340
----- ------
Total liabilities . . . . . . . . . . . . . . . . . . . 25,024 22,596
------ ------
Commitments and Contingencies
Shareholders' Equity:
Common stock, $0.0001 par value; 20,000,000 shares
authorized; 5,122,060 and 4,384,921 shares issued and
outstanding at 9/30/96 and 12/31/95 . . . . . . . . . . . . . . 1 -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 42,382 33,252
Net unrealized appreciation (depreciation) on investments . . . . 490 (155)
Distributions in excess of accumulated earnings . . . . . . . . (936) (213)
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Total shareholders' equity . . . . . . . . . . . . . . 41,937 32,884
------ ------
Total liabilities and shareholders' equity . . . . . . $66,961 $55,480
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
1
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ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
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1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Investment Income:
Interest . . . . . . . . . . . . . . . . . . . . . . . . $1,993 $1,649 $5,252 $4,335
Premium income . . . . . . . . . . . . . . . . . . . . . 271 678 1,202 1,590
----- ----- ----- -----
Total investment income . . . . . . . . . . . . . . . . 2,264 2,327 6,454 5,925
----- ----- ----- -----
Operating Expenses:
Investment advisory fee . . . . . . . . . . . . . . . . . 414 310 1,099 807
Interest expense . . . . . . . . . . . . . . . . . . . . 416 306 1,278 559
Other operating expenses . . . . . . . . . . . . . . . . 28 131 369 354
----- ----- ----- -----
Total expenses . . . . . . . . . . . . . . . . . . . . 858 747 2,746 1,720
----- ----- ----- -----
Net investment income . . . . . . . . . . . . . . . . . . . 1,406 1,580 3,708 4,205
Net realized loss on investments . . . . . . . . . . . . . (15) (114) (99) (153)
----- ----- ----- -----
Net investment income before net unrealized
appreciation (depreciation) on investments . . . . . . . . 1,391 1,466 3,609 4,052
Net unrealized appreciation (depreciation) on investments . 387 (64) 645 (57)
----- ----- ----- -----
Net increase in net assets resulting from operations . . . $1,778 $1,402 $4,254 $3,995
===== ===== ===== =====
Earnings per share . . . . . . . . . . . . . . . . . . . . $ 0.35 $ 0.32 $ 0.91 $ 0.91
===== ===== ===== =====
Weighted average number of shares and share
equivalents outstanding . . . . . . . . . . . . . . . . . 5,072 4,381 4,672 4,381
===== ===== ===== =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
2
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ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
------------
1996 1995
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<S> <C> <C>
Increase in Net Assets Resulting from Operations:
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,708 $ 4,205
Net realized loss on investments . . . . . . . . . . . . . . . . . . . . (99) (153)
Net unrealized appreciation (depreciation) on investments . . . . . . . . 645 (57)
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Net increase in net assets resulting from operations . . . . . . . . 4,254 3,995
------ ------
Distributions to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . (4,332) (3,686)
------ ------
Capital Share Transactions:
Sale of common shares in private offering . . . . . . . . . . . . . . . . . 2,125 -
Issuance of common shares in rights offering . . . . . . . . . . . . . . . 6,809 -
Issuance of common shares in lieu of cash distributions . . . . . . . . . . 197 133
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Net increase in net assets resulting from capital share transactions. . 9,132 133
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Total increase in net assets . . . . . . . . . . . . . . . . . . . . . . . . 9,053 442
Net assets at beginning of period . . . . . . . . . . . . . . . . . . . . . . 32,884 32,788
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Net assets at end of period . . . . . . . . . . . . . . . . . . . . . . . . . $41,937 $33,230
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Net asset value per share . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8.19 $ 7.59
====== ======
Shares outstanding at end of period . . . . . . . . . . . . . . . . . . . . . 5,122 4,381
====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
3
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ALLIED CAPITAL LENDING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
------------
1996 1995
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<S> <C> <C>
Cash Flows from Operating Activities:
Net increase in net assets resulting from operations . . . . . . . . . $ 4,254 $ 3,995
Adjustments to reconcile net increase in net assets resulting from
operations to net cash provided by (used in) operating activities:
Premium income . . . . . . . . . . . . . . . . . . . . . . . . . . (1,202) (1,590)
Amortization of loan discounts and fees . . . . . . . . . . . . . (282) (322)
Net realized loss on investments . . . . . . . . . . . . . . . . . 99 153
Net unrealized (appreciation) depreciation on investments . . . . (645) 57
Changes in assets and liabilities:
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . (82) (267)
Excess servicing asset . . . . . . . . . . . . . . . . . . . . . . . (474) (684)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,168) (112)
Accounts payable and accrued expenses. . . . . . . . . . . . . . . . (1,727) 222
Investment advisory fee payable . . . . . . . . . . . . . . . . . . 84 80
------ -------
Net cash provided by (used in) operating activities . . . . . . (1,143) 1,532
------- -------
Cash flows from Investing Activities:
Loan originations . . . . . . . . . . . . . . . . . . . . . . . . . . (34,616) (37,980)
Proceeds from the sale of loans . . . . . . . . . . . . . . . . . . . 13,830 20,662
Collections from loans receivable . . . . . . . . . . . . . . . . . . 11,000 6,686
------ -------
Net cash used in investing activities . . . . . . . . . . . . . (9,786) (10,632)
------ -------
Cash Flows from Financing Activities:
Proceeds from the issuance of common shares . . . . . . . . . . . . 8,934 ---
Dividends and distributions paid . . . . . . . . . . . . . . . . . . (4,475) (3,816)
Net borrowings under revolving lines of credit . . . . . . . . . . . 4,411 13,055
------ ------
Net cash provided by financing activities . . . . . . . . . . 8,870 9,239
------ ------
Net (decrease) increase in cash and cash equivalents . . . . . . . . . . (2,059) 139
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . 3,020 1,297
------ ------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . $ 961 $ 1,436
====== ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
4
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ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30. 1996
(UNAUDITED)
NOTE 1. GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements of Allied Capital Lending Corporation (the
Company) and its 99% owned limited partnership, ACLC Limited
Partnership (the "Partnership") contain all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
Company's consolidated financial position as of September 30, 1996
and the results of operations, changes in net assets, and cash flows
for the periods indicated. Certain information and footnote
disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in
the Company's December 31, 1995 Annual Report. The results of
operations for the nine months ended September 30, 1996 are not
necessarily indicative of the operating results to be expected for
the full year. Certain reclassifications have been made to the 1995
financial statements in order to conform to the 1996 presentation.
NOTE 2. DIVIDENDS AND DISTRIBUTIONS
The Company's board of directors declared a third quarter dividend
equivalent to $0.30 per share payable on September 30, 1996 to
shareholders of record on September 13, 1996. In connection with this
dividend, the Company paid cash of $1,467,000 and distributed new
shares of common stock to participants in the dividend reinvestment
plan with a value of $68,000 for a total dividend of $1,535,000. The
Company's board of directors have declared dividends during 1996
equivalent to $0.90 per share or $4,332,000. In connection with these
dividends, the Company has paid cash of $4,147,000 and distributed new
shares of common stock to participants in the dividend reinvestment
plan with a value of $185,000 for a total dividend of $4,332,000.
NOTE 3. NOTES PAYABLE
The Company has a $20,000,000 secured line of credit with a bank which
expires November 30, 1996. The interest rate associated with this
line of credit is equal to the one-month LIBOR plus 2.2 percent per
annum, payable monthly. As of September 30, 1996 and December 31,
1995, the Company was paying interest at 7.64 percent and 7.95 percent
per annum, respectively, on the amounts outstanding under this line.
The line of credit requires a quarterly facility fee of 0.375 percent
per annum on the unused portion of the line of credit. As of
September 30, 1996 and December 31, 1995, the Company had outstanding
borrowings under the secured line of credit equal to $19,601,000 and
$13,335,000, respectively. Subsequent to September 30, 1996, the
Company is renegotiating this line of credit agreement. The facility
is expected to have a $25 million borrowing capacity. The Company's
borrowings under this line of credit are anticipated to be subject to
a rate of 30-day LIBOR plus 1.6% for borrowings against the guaranteed
portion of the loans and a rate of 30-day LIBOR plus 2.2% for the
borrowings against the unguaranteed portions of the loans. In
addition, it is anticipated that the Company will be subject to an
annual facility fee equal to approximately 0.2% of $25 million.
The Company had a $2,000,000 unsecured revolving line of credit with a
bank, which charged interest at The Wall Street Journal prime rate
plus 0.25 percent per annum, payable monthly. This unsecured line of
credit was canceled in April 1996. As of December 31, 1995, the
Company was paying interest at 8.75 percent per annum on the amount
outstanding under this line. The line of credit required a quarterly
facility fee of 0.375 percent per annum on the unused portion of the
line of credit. As of December 31, 1995, the Company had outstanding
borrowings under the unsecured line of credit equal to $1,055,000.
5
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ALLIED CAPITAL LENDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30. 1996
(UNAUDITED)
The Partnership had a credit agreement with an investment bank
whereby the it could borrow up to $20,000,000 in order to finance its
loans to small business concerns. This credit agreement charged
interest at a rate equal to one-month LIBOR plus 2 percent per annum,
payable monthly, and expired on September 30, 1996. The agreement
required a quarterly facility fee of 0.15 percent per annum on the
unused portion of the line. The Partnership had total borrowings
under this agreement equal to $4,524,000 at December 31, 1995, at
interest rates ranging from 7.75 percent to 7.93 percent per annum.
There were no borrowings under this agreement at September 30, 1996.
The Partnership did not renew this credit agreement.
The Partnership has a secured revolving line of credit with a bank to
borrow up to $15,000,000 at a rate equal to one-month LIBOR plus 2.7
percent per annum, payable monthly, which expires November 30, 1996.
As of September 30, 1996, the Partnership was paying interest of
8.138 percent on the amounts outstanding under this line. The
agreement requires payment of a quarterly facility fee of 0.375
percent per annum on the unused portion of the line. As of September
30, 1996, the Partnership had outstanding borrowings under this
agreement equal to $3,724,000. Subsequent to September 30, 1996, the
Partnership is anticipating modifying this line of credit agreement.
The facility is expected to have a $15 million borrowing capacity and
the Partnership borrowings under this line of credit are anticipated to
be subject to a rate of 30-day LIBOR plus 1.6%. In addition, the
Partnership is expected to be subject to an annual facility fee equal
to 0.2% of $15 million.
NOTE 4. SHAREHOLDERS' EQUITY
The Company issued to common stockholders of record at the close of
business on April 26, 1996, the record date, non-transferable
subscription rights that entitled record date stockholders to
subscribe for and purchase from the Company up to one authorized, but
unissued share of the Company's common stock for each five
subscription rights held ("rights offering"). The Company offered a
total of 628,909 shares of common stock pursuant to this offer, with
the right to increase the number of shares subject to be purchased by
15 percent, or 94,336 shares, for an aggregate total of 723,245 shares
available under the offer. Stockholders who fully exercised their
subscription rights were entitled to the additional privilege of
subscribing for shares from the offer not acquired by the exercise of
subscription rights.
Stockholders participating in the rights offering subscribed for
195,457 shares through the primary subscription and 353,430 shares
through the oversubscription privilege for a total of 548,887 shares.
The subscription price per common share was $13.04, which equaled 95
percent of the average of the last reported sale price of a share of
common stock on the Nasdaq National Market on June 4, 1996 (the
expiration date of the offer) and each of the four preceding business
days. The Company paid a 2.5 percent commission to eligible
broker/dealers on each share sold as a result of their soliciting
efforts. The Company received gross proceeds of $7,158,000 from the
rights offering.
The Company reserved the right to offer and sell any shares not
subscribed for in the rights offering to one or more third parties
through a public offering ("public offering"). Therefore, in July
1996 the Company sold the 174,358 shares (including the additional
94,336 shares added to the offer at the discretion of the Company)
not sold in the rights offering to a private buyer at a net price of
$12.74 per share. This price was determined as the $13.04 per share
paid by shareholders in the rights offering on June 4, 1996 less the
second quarter dividend of $0.30 per share paid to shareholders of
record on June 14, 1996. This price allowed the buyer to purchase
the stock in July 1996 at the same price he would have paid if he had
been a shareholder participating in the rights offering prior to
payment of the second quarter dividend. The underwriter for the
transaction received a 2.56% commission, or $0.326 per share. The
Company received gross proceeds of $2,221,000 from this sale.
Net proceeds from the rights offering and public offering combined were
$8,934,000, after expenses of $445,000, including commissions.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Commitments. The Company had loan commitments outstanding equal to
$37,500,000 at September 30, 1996 to invest in various existing and
prospective portfolio companies.
6
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
For the three months ended September 30, 1996, the net increase in net
assets resulting from operations was $1.8 million, or $0.35 per share,
a 27% increase from $1.4 million, or $0.32 per share, for the same
period for 1995.
Total investment income decreased $63,000 or 2.7%, over the
comparative three months in 1995 to $2.3 million. This decrease is
due to premium income decreasing $407,000 or 60% from the comparable
period in 1995. Premium income decreased because loans available for
sale were not sold as of September 30, 1996. The Company has
marked-to-market the loans available for sale as of September 30, 1996
and has included in unrealized appreciation the estimated net premiums
from the sale of these loans equal to $444,000. Interest income
increased to $2.0 million for the three months ended September 30,
1996 from $1.6 million for the three months ended September 30, 1995,
which is a 21% increase. Interest income has increased because the
Company has been able to grow its portfolio. As of September 30, 1996
and 1995, the Company's investments to small business concerns equaled
$58.9 million and $45.1 million, respectively.
Total expenses for the third quarter ended 1996 have increased 15% to
$858,000 over the comparable quarter in 1995. The Company's
investment advisory fee increased to $414,000 from $310,000 for the
three months ended September 30, 1996 and 1995, respectively. This
increase in advisory fee is the result of having a larger asset base
on which the investment advisory fee is based. At September 30, 1996
and 1995, the Company had total assets of $66,961,000 and $51,156,000,
respectively. Interest expense increased $110,000 to $416,000 from
$306,000 for the three months ended September 30, 1996 and 1995,
respectively. Interest expense increased due to increased borrowings
in the third quarter of 1996 in order to fund the higher level of SBA
guaranteed and related loan originations. In addition, the Company
incurred additional interest expense because certain loans closed in
previous quarters consisted of non-guaranteed loans, which require
more time to sell in the secondary market which requires the Company
to carry its borrowings for longer periods. The Company finances the
origination of SBA Section 7(a) guaranteed loans and the 7(a) and 504
companion loans with warehouse credit facilities until the loans can
be sold. Notes payable increased to $23.3 million at September 30,
1996 as compared to $16.2 million at September 30, 1995.
All other expenses equaled $28,000 for the three months ended
September 30, 1996, as compared to other expenses of $131,000 for the
same period of 1995. This decrease is primarily due to timing of
services rendered by the Company's vendors related to shareholder
services and portfolio expenses.
At September 30, 1996 the Company held loans with a cost of $11.8
million for sale to third-party purchasers. These loans have been
valued at their estimated net sales price upon culmination of the
sale. These loans consisted of SBA 7(a) and 504 companion loans.
These loans are expected to be sold at net premiums ranging from 3.0%
to 6.5%, and are anticipated to be sold during the fourth quarter of
1996.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Net increase in net assets resulting from operations was $4.3 million,
or $0.91 per share, for the nine months ended September 30, 1996,
compared to $4.0 million, or $.91 per share, for the same period in
1995. Although the net increase in net assets resulting from
operations equaled $0.91 per share for the nine months ended September
30, 1996 and 1995, the 1996 per share amounts reflect an increase of
6.6% in the weighted average number of shares and share equivalents
used to calculate earnings per share.
Total investment income for the nine months ended September 30, 1996
and 1995, equaled $6.5 million and $5.9 million, respectively.
Interest income increased to $5.3 million from $4.3 million or 21% for
the nine months ended September 30, 1996 and 1995, respectively. This
increase is due to growth in the Company's investments in small
business concerns. Premium income for the nine months ended September
30, 1996 equaled $1.2 million, which represents a decrease of $388,000
or 24% over the comparable period in 1995. This decrease in premium
income results from the timing of loan sales to the secondary market
place as discussed in the quarterly results comparison above.
Total expenses for the nine months ended September 30, 1996 increased
by $1.0 million or 60% to $2.7 million from $1.7 million for the same
period in 1995. This increase in total expenses is primarily due to
the investment advisory fee and interest expense. The Company's
investment advisory fee is based upon total assets at the end
7
<PAGE> 10
of each quarter and increases as the Company's total assets increase
on a quarterly basis. The Company is funding its growth in
investments to small business concerns by borrowings from its existing
credit lines. As the Company continues to borrow funds to finance its
portfolio, interest expense increases. Other operating expenses have
increased modestly in 1996 over 1995 and equaled $369,000 and
$354,000 for the nine months ended September 30, 1996 and 1995,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Currently, the Company is licensed by the SBA as a small business
lending company ("SBLC") and is a participant in the SBA Section 7 (a)
Loan Program. The Company also participates in the SBA Section 504
Loan Program, currently through the ACLC Limited Partnership (the
"Partnership"), and may also make other small business loans. Allied
Capital Advisers, Inc. ("Advisers") serves as the investment adviser
of the Company under an investment advisory agreement.
The Company has formed two new entities, Allied Capital SBLC
Corporation ("Allied SBLC"), and Allied Capital Credit Corporation
("Allied Credit") during 1996 in anticipation of reorganizing the
Company. Both Allied SBLC and Allied Credit (the "Subsidiaries") are
Maryland corporations and closed-end management investment companies
that intend to elect to be regulated as BDCs under the 1940 Act.
Pursuant to a plan of reorganization, which was approved by the SBA on
June 7, 1996 and for which the Securities and Exchange Commission
granted exemptive relief on September 10, 1996, the Company will
become the parent of the Subsidiaries. On or about December 1, 1996,
it is anticipated that the Company will transfer its SBLC license and
all Section 7(a) loans and related assets and liabilities to Allied
SBLC in return for 100% of Allied SBLC's common stock. The Company
will contribute its general partnership interest and its 99% limited
partnership interest in the Partnership and all of its loans and
related assets and liabilities to Allied Credit in return for 100% of
Allied Credit's common stock. Simultaneous with this transaction,
Allied Credit will purchase the 1% limited partnership interest not
owned by the Company and the Partnership will be dissolved. Following
the reorganization, Allied SBLC will hold the SBLC license and will
participate in the Section 7(a) Loan Program. Allied Credit will
generate companion loans to the 7(a) loans, participate in the SBA
Section 504 Loan Program, and make other loans. The Company itself
may also participate in the Section 504 Loan Program and may generate
7(a) companion loans as well as other loans not related to these SBA
programs. The Company intends to maintain complete ownership of the
Subsidiaries and to raise capital to finance the Subsidiaries, as
needed. The Company believes this new structure will provide the
Company and the Subsidiaries with greater flexibility to generate
loans, and to operate within certain regulatory constraints.
The Company originated $34.6 million in new loans during the first
nine months of 1996. Net of loan sales, repayments and changes in
portfolio valuation, the Company's total loans to small businesses
increased by $11.8 million to $58.9 million at September 30, 1996 as
compared to $47.1 million at December 31, 1995. At September 30,
1996, loans to small businesses totaled 88% of the Company's total
assets, compared to 85% at December 31, 1995.
As of September 30, 1996 and December 31, 1995, the Company was paying
an interest rate of 7.64% and 7.95% per annum, respectively, for its
$20 million secured line of credit. The secured line of credit
expires November 30, 1996. The Company had total borrowings under
this facility equal to $19.6 million at September 30, 1996. In April
1996, this line of credit was amended to increase the borrowing limit
to $20 million from $19 million. This line of credit is used to
finance loans made under the Section 7(a) guaranteed loan program.
Subsequent to September 30, 1996, the Company renegotiated and
modified this line of credit agreement. As of December 1, 1996, it is
anticipated that this line will be used by Allied SBLC. It is
anticipated that the new facility will have a $25 million borrowing
capacity. The Company's borrowings under this line of credit are
expected to be subject to a rate of 30-day LIBOR plus 1.6% for
borrowings against the guaranteed portions of the loans and a rate of
30-day LIBOR plus 2.2% for borrowings against the unguaranteed
portions of the loans. In addition, it is expected that the Company
will be subject to an annual facility fee equal to 0.2% of $25
million.
In April 1996, the Company canceled its unsecured line of credit that
had a borrowing limit of $2 million and charged interest at The Wall
Street Journal prime rate plus 0.25% per annum. As of December 31,
1995, the Company was paying an interest rate of 8.75% per annum and
had total borrowings under the facility equal to $1.1 million.
The Partnership had a credit agreement with an investment bank whereby
the Partnership can borrow up to $20 million in order to finance its
loans closed under the SBA 504 program and companion loans closed in
conjunction
8
<PAGE> 11
with guaranteed loans. This credit agreement charged interest at
one-month LIBOR plus 2% per annum and expired September 30, 1996. The
Company had total borrowings under this agreement equal to $4.5
million at December 31, 1995, at interest rates ranging from 7.75% to
7.93% per annum. There were no borrowings under this agreement at
September 30, 1996. The Company did not renew this credit agreement.
In addition, the Partnership entered into a new secured line of credit
with a bank in April 1996 to borrow up to $15 million at one-month
LIBOR plus 2.7% per annum which expires November 30, 1996. At
September 30, 1996, the Partnership was paying interest of 8.138% on
the $3.7 million borrowed under this agreement. This line of credit
is also being used to finance the Partnership's loans closed under the
Section 504 program and companion loans closed in conjunction with
guaranteed loans. The Company is renegotiating this line of credit
agreement. It is anticipated that this line will be used by Allied
Credit following the reorganization. It is expected that the
facility will have a $15 million borrowing capacity, and borrowings
under this line of credit are expected to be subject to a rate of
30-day LIBOR plus 1.6%. In addition, it is expected that the Company
will be subject to an annual facility fee equal to approximately 0.2%
of $15 million.
The Company issued to common stockholders of record at the close of
business on April 26, 1996, the record date, non-transferable
subscription rights that entitled record date stockholders to
subscribe for and purchase from the Company up to one authorized but
unissued share of the Company's common stock for each five
subscription rights held ("rights offering"). The Company offered a
total of 628,909 shares of common stock pursuant to this offer, with
the right to increase the number of shares subject to be purchased by
15 percent, or 94,336 shares, for an aggregate total of 723,245 shares
available under the offer. Stockholders who fully exercised their
subscription rights were entitled to the additional privilege of
subscribing for shares from the offer not acquired by the exercise of
subscription rights.
Stockholders participating in the rights offering subscribed for
195,457 shares through the primary subscription and 353,430 shares
through the oversubscription privilege for a total of 548,887 shares.
The subscription price per common share was $13.04, which equaled 95
percent of the average of the last reported sale price of a share of
common stock on the Nasdaq National Market on June 4, 1996 (the
expiration date of the offer) and each of the four preceding business
days. The Company paid a 2.5 percent commission to eligible
broker/dealers on each share sold as a result of their soliciting
efforts. The Company received gross proceeds of $7.2 million from the
rights offering.
The Company reserved the right to offer and sell any shares not
subscribed for in the rights offering to one or more third parties
through a public offering ("public offering"). Therefore, in July
1996 the Company sold the 174,358 shares not sold in the rights
offering to a private buyer at a net price of $12.74 per share. This
price was determined as the $13.04 per share paid by shareholders in
the rights offering on June 4, 1996 less the second quarter dividend
of $0.30 per share paid to shareholders of record on June 14, 1996.
This price allowed the buyer to purchase the stock in July 1996 at
the same price he would have paid if he had been a shareholder
participating in the rights offering prior to payment of the second
quarter dividend. The underwriter for the transaction received a
2.56% commission, or $0.326 per share. The Company received gross
proceeds of $2.2 million from this sale.
Net proceeds from the rights offering and public offering combined
were $8.9 million, after expenses of $445,000, including commissions.
Management plans to continue to use leverage to finance the growth of
the Company, however as a business development company (BDC), the
Company must maintain 200% asset coverage for indebtedness
representing senior securities, which will limit the Company's ability
to borrow. The Company will, however, be able to increase its
leverage in Allied SBLC beyond the 200% asset coverage limit subject
to market availability. It is management's belief that the Company
will have access to the capital resources necessary to expand and
develop its business. The Company may seek to obtain funds through
additional equity offerings, debt financings, or loan sales. The
Company anticipates that adequate cash will be available to make new
loans, fund its operating and administrative expenses, satisfy debt
service obligations and pay dividends over the next year.
Statements included in this filing concerning the Company's future
prospects are "forward looking statements" under the Federal
securities laws. There can be no assurance that future results will
be achieved and actual results could differ materially from forecasts
and estimates. Important factors that could cause actual results to
differ materially are included but are not limited to those listed in
the Company's quarterly reports as filed on Form 10-Q and annual
report as filed on Form 10-K.
9
<PAGE> 12
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a defendant in any material pending legal
proceeding and no such material proceedings are known to be
contemplated.
Item 2. CHANGES IN SECURITIES
No material changes have occurred in the securities of the Registrant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
11 Statement of Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended September 30, 1996.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
ALLIED CAPITAL LENDING CORPORATION
----------------------------------
(Registrant)
------------
Dated: November 13, 1996 /s/ Jon A. DeLuca
------------------ --------------------------------------
Executive Vice President and Chief Financial
Officer
11
<PAGE> 1
Allied Capital Lending Corporation
Exhibit 11 Statement of Computation of Earnings Per Common Share
Form 10-Q
September 30, 1996
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
--------------------------- -------------------------
1996 1995 1996 1995
--------------------------- -------------------------
<S> <C> <C> <C> <C>
Primary Earnings Per Common Share:
Net Increase in Net Assets Resulting
from Operations $1,778,000 $1,402,000 $4,254,000 $3,995,000
=========================== =========================
Weighted average number of
shares outstanding 5,072,086 4,380,999 4,671,538 4,380,999
Weighted average number of
shares issuable on exercise
of outstanding stock options - - - -
--------------------------- -------------------------
Weighted average number of shares and
share equivalents outstanding 5,072,086 4,380,999 4,671,538 4,380,999
=========================== =========================
Earnings per Share $0.35 $0.32 $0.91 $0.91
=========================== =========================
Fully Diluted Earnings Per Common Share:
Net Increase in Net Assets Resulting
from Operations $1,778,000 $1,402,000 $4,254,000 $3,995,000
=========================== =========================
Weighted average number of
shares and share equivalents
outstanding as computed for
primary earnings per share 5,072,086 4,380,999 4,671,538 4,380,999
Weighted average of additional
shares issuable on exercise
of outstanding stock options - - - -
--------------------------- -------------------------
Weighted average of shares and
share equivalents outstanding,
as adjusted 5,072,086 4,380,999 4,671,538 4,380,999
=========================== =========================
Earnings per Share $0.35 $0.32 $0.91 $0.91
=========================== =========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLIED
CAPITAL LENDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF OPERATIONS, CHANGES IN NET ASSETS, AND CASH FLOWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 58,473
<INVESTMENTS-AT-VALUE> 58,963
<RECEIVABLES> 814
<ASSETS-OTHER> 1,921
<OTHER-ITEMS-ASSETS> 5,263
<TOTAL-ASSETS> 66,961
<PAYABLE-FOR-SECURITIES> 23,325
<SENIOR-LONG-TERM-DEBT> 1,699
<OTHER-ITEMS-LIABILITIES> 25,024
<TOTAL-LIABILITIES> 42,383
<SENIOR-EQUITY> 5,122
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 4,389
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (936)
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 480
<NET-ASSETS> 41,937
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,252
<OTHER-INCOME> 1,202
<EXPENSES-NET> 2,746
<NET-INVESTMENT-INCOME> 3,708
<REALIZED-GAINS-CURRENT> (99)
<APPREC-INCREASE-CURRENT> 645
<NET-CHANGE-FROM-OPS> 4,254
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,332
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 737
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 9,053
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,089
<INTEREST-EXPENSE> 1,278
<GROSS-EXPENSE> 2,746
<AVERAGE-NET-ASSETS> 37,410
<PER-SHARE-NAV-BEGIN> 7.50
<PER-SHARE-NII> 0.91
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.90
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.19
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 21,119
<AVG-DEBT-PER-SHARE> 4.12
</TABLE>
