NEW YORK, NY — (MARKET WIRE) — 01/26/10 — Prospect Capital Corporation (NASDAQ: PSEC)(“Prospect”) announced today that it has delivered a letter to the Board ofDirectors of Allied Capital Corporation (“Allied”) raising its offer toacquire Allied. Set forth below is the full text of the letter:
January 26, 2010
Board of Directorsc/o John M. ScheurerChief Executive Officer and PresidentAllied Capital Corporation1919 Pennsylvania Avenue N.W.Washington, D.C. 20006
Ladies and Gentlemen:
We hereby increase our offer to acquire Allied Capital Corporation to 0.40of a share of Prospect common stock for each share of Allied common stock.As discussed below, the implied value of our offer is now more than 20%greater than the implied value of Ares’ offer to Allied shareholders.
Revised Superior Value: Based on an after-market trading price of $12.56per share of Prospect common stock on January 25, 2010, Prospect’s offerrepresents a value of $5.02 per share of Allied common stock, which is anover 20% premium to the $4.17 value per Allied share implied by an exchangeratio of 0.325 of a share of Ares common stock in the Ares merger (based ona $12.84 after-market trading price of Ares common stock price on January25, 2010).
Revised Superior Dividends: Based on our proposed exchange ratio and Ares’and our most recent quarterly dividend, our offer would provide Alliedshareholders with a pro forma quarterly dividend of $0.164 per share ofAllied common stock, which is more than 40% higher than the pro formaquarterly dividend of $0.114 per share of Allied common stock under theAres merger.
Superior Upside Potential: Based on our proposed exchange ratio, Alliedshareholders would receive 71.7 million shares of Prospect common stock,representing 53% of the ownership of the combined entity. A Prospect-Alliedcombination would preserve greater upside for existing shareholders ofAllied than would a combination with Ares, where Allied shareholders wouldexpect to own only 31% of the combined entity, after giving effect to theproposed equity offering Ares announced yesterday.
Transaction Certainty: We are confident that we can promptly consummatethe proposed transaction. We have reviewed the merger agreement signedbetween Allied and Ares and are comfortable, subject to due diligence,executing an agreement with Allied substantially similar to Allied’sagreement with Ares. We believe we can complete our due diligence within15 business days once full access to due diligence materials has beengranted. Given our access to debt and equity capital markets and our lowerexisting and pro forma leverage profile in comparison to Ares, we areconfident we will be able to maintain or refinance Allied’s existinginstitutional debt. Unlike Ares, we have successfully merged with anotherpublicly traded business development company, Patriot Capital, following anauction, which should dispel any doubt as to our ability and resolve tocomplete this merger.
Streamlined Integration: While Ares has not made any public announcementabout the fate of Allied’s professional staff in Washington, D.C. or NewYork, we are interested in retaining a significant portion of the Alliedteam, in order to maximize continuity of asset management and monetizationof the portfolio and to reduce integration risk.
We believe our offer represents a compelling strategic combination thatwill generate superior value for Allied shareholders in comparison to theAres proposal. Allied has successfully restructured its institutionaldebt, does not face a liquidity crisis and has benefited from theimprovement in the debt markets. Accordingly, we do not understand why theAllied board insists on barreling ahead with an inferior transaction withAres without talking to us or engaging with us in any way. We do not seehow completely ignoring a superior offer serves Allied shareholders.
Should the Allied board continue to “stiff arm” us, we are prepared topursue all available options, including bringing the matter directly toAllied shareholders.
We look forward to your favorable response by 5 P.M., Eastern Standard Timeon Thursday, January 28, 2010.
Very truly yours,
Prospect Capital CorporationBy: /s/ M. Grier EliasekName: M. Grier EliasekTitle: President and COOcc: Gary Swidler, BofA Merrill Lynch Ian Simmonds, BofA Merrill Lynch
ABOUT PROSPECT CAPITAL CORPORATION
Prospect Capital Corporation (www.prospectstreet.com/) is a closed-endinvestment company that lends to and invests in private and microcap publicbusinesses. Our investment objective is to generate both current income andlong-term capital appreciation through debt and equity investments.
We have elected to be treated as a business development company under theInvestment Company Act of 1940 (“1940 Act”). We are required to comply witha series of regulatory requirements under the 1940 Act as well asapplicable NASDAQ, federal and state rules and regulations. We have electedto be treated as a regulated investment company under the Internal RevenueCode of 1986. Failure to comply with any of the laws and regulations thatapply to us could have an adverse effect on us and our shareholders.
Forward-Looking Statements
This press release contains forward-looking statements within the meaningof the Private Securities Litigation Reform Act of 1995, whose safe harborfor forward-looking statements does not apply to business developmentcompanies. Such forward-looking statements may relate to us and/or ourindustry and address matters that involve risks and uncertainties.Forward-looking statements reflect our current views and assumptions withrespect to future events, operations, business plans, business andinvestment strategies and portfolio management, the performance of ourinvestments and our investment management business and the economy. Theseforward-looking statements are not historical facts, but rather are basedon current expectations, estimates and projections about our industry, ourbeliefs, and our assumptions. Words such as “intends,” “intend,””intended,” “goal,” “estimate,” “estimates,” “expects,” “expect,””expected,” “project,” “projected,” “projections,” “plans,” “seeks,””anticipates,” “anticipated,” “should,” “could,” “may,” “will,” “designedto,” “foreseeable future,” “believe,” “believes,” “currently anticipates,””currently believes” and “scheduled” and variations of these words andsimilar expressions are intended to identify forward-looking statements.Our actual results or outcomes may differ materially from thoseanticipated. Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date the statementwas made. We undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, futureevents or otherwise. These statements are not guarantees of futureperformance and are subject to risks, uncertainties, and other factors,some of which are beyond our control and difficult to predict and couldcause actual results to differ materially from those expressed orforecasted in the forward-looking statements, including without limitation:
-- our future operating results;-- our business prospects and the prospects of our portfolio companies;-- the impact of investments that we expect to make;-- our contractual arrangements and relationships with third parties;-- the dependence of our future success on the general economy and its impact on the industries in which we invest;-- the ability of our portfolio companies to achieve their objectives;-- difficulty in obtaining financing or raising capital, especially in the current credit and equity environment;-- the level and volatility of prevailing interest rates and credit spreads, magnified by the current turmoil in the credit markets;-- adverse developments in the availability of desirable loan and investment opportunities whether they are due to competition, regulation or otherwise;-- a compression of the yield on our investments and the cost of our liabilities, as well as the level of leverage available to us;-- our regulatory structure and tax treatment, including our ability to operate as a business development company and a regulated investment company;-- the adequacy of our cash resources and working capital;-- the timing of cash flows, if any, from the operations of our portfolio companies;-- the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments,-- authoritative generally accepted accounting principles or policy changes from such standard-setting bodies as the Financial Accounting Standards Board, the Securities and Exchange Commission, Internal Revenue Service, the NASDAQ, and other authorities that we are subject to, as well as their counterparts in any foreign jurisdictions where we might do business;-- our ability to manage future growth;-- our dependence on Prospect Capital Management's key management personnel;-- the highly competitive market for investment opportunities in which we operate;-- uncertainty as to the value of our portfolio investments;-- additional risks to which senior securities, including debt, expose us;-- changes in interest rates;-- our need to raise additional capital to grow because of the requirement that we distribute most of our income;-- the lack of liquidity in our investments;-- fluctuations in our quarterly results;-- fluctuations in our net asset value;-- potential conflicts of interest and their impact on investment returns;-- our incentive fee's impact on the types of investments made by Prospect Capital Management;-- changes in laws or regulations;-- risks relating to our operation as a business development company;-- risks relating to our investments and securities-- the integration of Patriot or other businesses we acquire or new business ventures we may start;-- uncertainty as to whether Allied will enter into and consummate the proposed transaction with Prospect on the terms set forth in our offer; and-- the risks, uncertainties and other factors we identify in "Risk Factors" and elsewhere in our filings with the SEC.
Although we believe that the assumptions on which these forward-lookingstatements are based are reasonable, any of those assumptions could proveto be inaccurate, and as a result, the forward-looking statements based onthose assumptions also could be inaccurate. Important assumptions includeour ability to originate new loans and investments, certain margins andlevels of profitability and the availability of additional capital. Inlight of these and other uncertainties, the inclusion of a projection orforward-looking statement in this press release should not be regarded as arepresentation by us that our plans and objectives will be achieved. Theserisks and uncertainties include those described or identified in “RiskFactors” and elsewhere in our filings with the SEC. You should not placeundue reliance on these forward-looking statements, which apply only as ofthe date of such filings.
Additional Information about the Proposed Transaction and Where to Find It:
This press release is not a proxy statement or a solicitation of proxiesand does not constitute an offer to sell or a solicitation of an offer tobuy any securities. This press release relates to a business combinationtransaction with Allied proposed by Prospect, which may become the subjectof a registration statement filed with the Securities and ExchangeCommission (the “SEC”). This material is not a substitute for theprospectus/proxy statement Prospect would file with the SEC regarding theproposed transaction if such a negotiated transaction with Allied isreached or for any other document which Prospect may file with the SEC andsend to Allied or Prospect shareholders in connection with the proposedtransaction. INVESTORS AND SECURITY HOLDERS OF ALLIED AND PROSPECT AREURGED TO READ ANY SUCH DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIRENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAINIMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Such documents wouldbe available free of charge through the web site maintained by the SEC atwww.sec.gov or by directing a request to the contact listed below.
Prospect and its directors, executive officers and other persons may bedeemed to be participants in any solicitation of shareholders in connectionwith the proposed transaction. Information about Prospect’s directors andexecutive officers is available in Prospect’s proxy statement for its 2009annual meeting of shareholders, which was filed with the SEC on October 16,2009. Other information regarding potential participants in such proxysolicitation and a description of their direct and indirect interests, bysecurity holdings and otherwise, will be contained in any proxy statementfiled in connection with the proposed transaction.
All information in this communication concerning Allied and Ares wasobtained from public sources. While Prospect has no knowledge that anysuch information is inaccurate or incomplete, Prospect has not had theopportunity to verify any of such information.