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  "documentTitle": "Allied Capital (ALD)",
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  "authorName": "David Einhorn",
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  "notes": "The slide highlights a discrepancy between Allied's stated valuation methods and Greenlight's assessment of appropriate GAAP-compliant accounting.",
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      "text": "Greenlight believes that Allied may be using the tax definition rather than the GAAP definition of realized losses. Greenlight estimates that Allied has deferred over $65 million in charge-offs by not following this method.",
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      "text": "Greenlight has evaluated Allied’s impaired loans. Greenlight observes that initial impairments are often followed by additional impairments. Greenlight finds very little",
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      "text": "Allied cites this as a positive benefit of their structure compared to a bank that has to recognize charge-offs to satisfy regulators. During conversations with Allied’s management, Greenlight asked for an example of an investment where the company’s patience paid off. Neither Ms. Sparrow nor Ms. Roll could cite a single loan in the last three years where Allied had carried the loan at a discount, were patient, and eventually got an improved recovery.",
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      "text": "Loans rated 4 mean that Allied expects to lose some contractual interest but no principal. These loans are considered non-accrual. As for the carrying value of these loans, according to the May 29th conference call, “It depends on the asset, but most of those would be carried at original cost.” Greenlight does not believe that it is appropriate to carry non-accruing loans at a fair value of original cost.",
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      "text": "Allied makes a big deal that its realized gains exceed its realized losses. Greenlight wonders whether the no time limit policy is appropriate for charge-offs. This leads to an enormous selection bias in this line item. If they can try collecting for a long time, charge-offs are unreasonably delayed. Perhaps, when a loan is permanently impaired the amount of the impairment should be recognized as a charge-off or a realized loss. Greenlight believes that Allied may be using the tax definition rather than the GAAP definition of realized losses. Greenlight estimates that Allied has deferred over $65 million in charge-offs by not following this method.",
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      "text": "According to Ms. Sparrow, “There is no time limit on our investments...we could keep them at some level of value as long as something is being done to try and recover the investment.”",
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      "text": "Greenlight believes that when a mezzanine loan to a middle market company becomes impaired, its fair value should be discounted from the eventual recovery value at a relatively high rate to compensate for both the time value of money and the inherent risk of achieving a recovery in such a difficult situation. Allied appears not to perform its valuation analysis in this fashion. Instead, Allied apparently carries the loan at the amount it expects to ultimately recover in the future.",
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      "text": "Loans rated 5 mean that the principal is impaired. These loans appear to get written down to the value Allied expects to eventually recover. According to Mr. Walton on the May 29th call, “We write loans down to the amount that we believe we will collect. We record unrealized depreciation to show shareholders what we think has been lost.”",
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      "text": "\"It depends on the asset, but most of those would be carried at original cost.\" — Mr. Walton (May 29th conference call); \"We write loans down to the amount that we believe we will collect. We record unrealized depreciation to show shareholders what we think has been lost.\" — Mr. Walton (May 29th conference call); \"There is no time limit on our investments...we could keep them at some level of value as long as something is being done to try and recover the investment.\" — Ms. Sparrow",
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      "text": "22 Ibid.",
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