Ciena files Chp. 11, hurting lender Allied Capital

Allied Capital said the value of Ciena's assets "is insufficient to cover all of its liabilities, and it is insolvent."

Shares of Allied Capital--which expects the bankruptcy to hurt its earnings--fell by more than half during trading Tuesday before recovering late in the session to close down nearly 14 percent.

New York-based Ciena--known until recently as Business Loan Express--specializes in loans of up to $10 million for commercial real estate projects and small businesses. Washington-based Allied counts Ciena among a portfolio of more than 200 companies in which it invests, and Allied spokesman Tom Becker said his firm is a secured creditor of Ciena. Allied said the number of buyers for Ciena's loans has dwindled amid the recent market instability and credit crunch.

A phone message seeking comment from officials at Ciena's headquarters was not immediately returned.

Allied said the Chapter 11 filing in the U.S. bankruptcy court in New York will enable Ciena "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 it plans to pay about $320 million due under Ciena's revolving credit agreements with its lenders, and Allied will continue to guarantee a remaining balance of about $10 million.

To make the payments, Allied intends to use cash of about $150 million, and may borrow about $170 on its unsecured revolving line of credit.

Allied Capital said it expects to record "substantial further unrealized depreciation in the value of its investment in Ciena" for the third quarter ending Tuesday.

Shares of Allied Capital plunged to a new 52-week low of $5.50 in afternoon trading. But the stock--which has traded in a 52-week range of $10.52 to $31.07--recovered to close down $1.75 at $10.80.