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  "documentTitle": "Allied Capital (ALD)",
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  "authorName": "David Einhorn",
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  "presentationDate": "2002-06-17 00:00:00",
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  "notes": "This is a text-heavy research note page detailing a dispute over accounting practices between Greenlight Capital and Allied Capital.",
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      "text": "Greenlight does not believe permanent impairment of value is an appropriate standard for measuring fair value. The company's accounting treatment seems inconsistent with the notion of fair value as defined by the SEC.",
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      "text": "According to Ms. Sparrow, “Investments are marked down only when we believe that there has been a permanent impairment of the value. Once we mark it down we don’t believe we will recover the investment.”21",
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      "text": "Loans rated 3 are on Allied’s monitor list. According to Allied, companies on the monitor list are probably performing below plan and may have tripped financial or other covenants. They may have even stopped paying interest temporarily. However, no permanent loss of interest or principal is expected. Allied carries such monitor list loans at cost.",
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      "text": "In Greenlight’s experience, when a credit underperforms, even if Greenlight thinks it will pay all its interest and principal, spreads widen and debt instruments issued",
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      "text": "a standard metric use in the industry so we’ll use that for today’s discussion purposes. In any event, banks now want loans in most cases no more than 2 to 2.5 times EBITDA, at most 3. Some banks are selling loans that are above these ratios and because there’s no liquid market, which we’ve talked about in the past, they’re forced to take a discount.\"",
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      "text": "It seems that Allied recognizes the market has changed, but believes that every sale is a “fire sale.”",
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      "text": "Greenlight understands the definitions, and cannot change the company’s beliefs. However, Greenlight does not believe permanent impairment of value is an appropriate standard for measuring fair value. The company’s accounting treatment seems inconsistent with the notion of fair value as defined by the SEC.",
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      "text": "Greenlight asked the company why Grade 3 loans were not written down. Greenlight asked why a loan is not worth less that it was worth on the day it was underwritten, given the deterioration.",
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      "text": "According to the JP Morgan 2001 High-Yield Annual Review, spreads on high yield bonds have widened over the past few years. Within high yield, lower grade bond spreads have widened more than higher grade bond spreads and non-cash paying bond spreads have widened versus cash paying bond spreads.20 This suggest that the values of investments in Allied’s portfolio have probably fallen.",
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      "text": "Greenlight believes that Allied’s entire portfolio should be marked to reflect the deterioration in the current value of middle market investments in the current environment.",
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      "text": "Investments are marked down only when we believe that there has been a permanent impairment of the value. Once we mark it down we don't believe we will recover the investment. — Ms. Sparrow",
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      "text": "20 J.P. Morgan “2001 Annual High-Yield Review,” p. 19.\n21 Greenlight Capital spoke to Ms. Sparrow on April 24, 2002 to discuss Allied Capital, its investments and its valuation methodology.",
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      "text": "Monitored Loans",
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